Bearing dust seal problem

I am fitting the steering from a ZRX to the KZ and seem to have run into a problem. The bottom bearing race fits well and sufficiently recessed to allow the dust seal to fit properly. The top bearing race however after installed is flush with the top of the neck and the bearing sits above the neck a bit not allowing the seal to do it's job. I'm correct in assuming the seal must be inside the neck right?

The dust seal should sit over the neck, I has a similar issue so I opened up the hole in the seal to sit over the inner race (it sits on the bearing cage but doesn't cause any drag as it doesn't put pressure on the cage)