Discussion:Single owner S corp - SEP and 401(k)?
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Discussion Forum Index --> Advanced Tax Questions --> Single owner S corp - SEP and 401(k)?
Discussion Forum Index --> Tax Questions --> Single owner S corp - SEP and 401(k)?
| 10 September 2009 | |
| I have a client who is a single owner S corp. He used to fund his SEP, but last year he had a really good year and was looking to maximize his retirement contributions so he set up a 401(k) with Schwab (the SEP was also with Schwab). We were having an issue trying to determine if he had a 5500-EZ filing requirement because he does not meet the $250K in assets if you just look at the 401(k) but if you consider his SEP then he does. I felt you had to consider the value in both accounts when making this determination. The client called the IRS retirement hotline and the agent told him that there is no way he should have a SEP and a 401(k). Is this true? I feel like Schwab should have known this. I'm wondering what the consequences may be or can the entire issue be resolved by rolling the SEP into the 401(k). I'm not sure if it matters, but he did not contribute to both plans in the same year. Any help would be greatly appreciated? Specific Code references would also be helpful. Thanks! | |
| 10 September 2009 | |
| It's possible to simultaneously maintain both plans, though that configuration of plans is often redundant. Since maintaining the two plans is doable, there's no code section that says it's a problem. What you want to avoid is a SEP plan document that states "You can't use this if you currently maintain another plan." Contributing to only one of the two plans greatly reduces the chance of operational problems. But it's still a problem in form if the SEP document has that clause mentioned previously. The SEP does not count for purposes of the Form 5500 EZ $250K threshold. The trust/custodial account holding the SEP's funds is an IRA and in most cases is rollable to a 401(k). | |
| 10 September 2009 | |
| Thanks - I have been looking everywhere and couldn't find anything that says you can't have both. I have asked the client for the SEP plan document this morning - so I'll take a look and see. I really appreciate your help! | |
| 10 September 2009 | |
| Marty - one more question. Is there any specific Code reference I can look to regarding the SEP not counting for the $250K threshhold? I know my partner will ask me. Everything I've found says you have to include the plan assets for all one-participant plans when making your determination - doesn't the SEP qualify as a one-participant plan? Thanks again! | |
| 10 September 2009 | |
| Internal Revenue Regulation Section 301.6058-1(a)(1) speaks of the Form 5500 series filing requirement required of certain plans listed at 301.6058-1(a)(2). The list includes qualified section 401 plans and 408 IRAs, among others. Section 301.6058-1(d) says that this current paragraph (d) applies to IRAs, in lieu of paragraph (a) above. The verbiage goes on to say that IRAs have to file a Form 5329. I'd go to the Form 5329 instructions if we need to see that only a small percentage of IRAs have to file the Form 5329.
I thought there was something more explicit regarding what's included/not included in the $250K, like an Announcement, but haven't been able to find anything. A reg is better anyway. | |
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