Retirement Plan saving question

My wife has home based business. We are filing joint
return. I did not qualify for IRA account due to income and
401(K) plan i have with my employer.

My wife did qualify for $3000 IRA account for year 2004. She
already made contribution for $3000 into 2004 IRA account.

Can she contribute additional savings into a new SEP account
also? What is the limit? Any downside doing that? She has no
employee!

Thanks.

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"BKS" <ashamailbox-> wrote:

> My wife has home based business. We are filing joint
> return. I did not qualify for IRA account due to income and
> 401(K) plan i have with my employer.
>
> My wife did qualify for $3000 IRA account for year 2004. She
> already made contribution for $3000 into 2004 IRA account.
>
> Can she contribute additional savings into a new SEP account
> also?

She can, but that will make her $3,000 contribution
nondeductible. The SEP constitutes being "covered" by a
retirement plan and makes her subject to the same income
limit as you.

This is not necessarily a bad thing, since much more can be
deferred in a SEP. See IRS Publication 560.

--
Phil Marti
Clarksburg, MD

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"BKS" <ashamailbox-> wrote:

> My wife has home based business. We are filing joint
> return. I did not qualify for IRA account due to income and
> 401(K) plan i have with my employer.
>
> My wife did qualify for $3000 IRA account for year 2004. She
> already made contribution for $3000 into 2004 IRA account.
>
> Can she contribute additional savings into a new SEP account
> also? What is the limit? Any downside doing that? She has no
> employee!

If you are disqualified from a deductible IRA because you
are in a retirement plan, she would be also. So her choice
is $3,000 in a deductible IRA OR a contribution to a SEP,
but not both. If she has more than $16,000 of income on her
Schedule C, I'd recommend the SEP.

--
Tom Healy, CPA
Boulder, CO
Web: http://www.tomhealycpa.com

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Thomas Healy wrote:
> "BKS" <ashamailbox-> wrote:

>> My wife has home based business. We are filing joint
>> return. I did not qualify for IRA account due to income and
>> 401(K) plan i have with my employer.
>>
>> My wife did qualify for $3000 IRA account for year 2004. She
>> already made contribution for $3000 into 2004 IRA account.

Actually, it doesn't matter whether she has separate income
for making an IRA contribution, deductible or not.

> If you are disqualified from a deductible IRA because you
> are in a retirement plan, she would be also.

This part is not necessarily correct. If MFJ, the AGI
cutoffs are around $60,000 for the covered person and
$160,000 for a non-covered spouse.

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