Multiple Simple IRAs
I am co-owner of a small corporation that has a SIMPLE/IRA plan. I contribute the maximum salary deferral of $11,500. I also am a sole proprietor of another business. Can I establish a SIMPLE/IRA for my sole proprietorship (in the same year) and defer $5000 of salary into that plan, which puts me at the overall 402(g) limit of $16,500?
I believe if I were an employEE of two separate companies with SIMPLE plans this would be ok. However as a full owner and partial owner of two companies with SIMPLEs potentially in the same year, I am wondering if I can still employ the same strategy.
The following link seems to imply that I can’t do this, but I would like your opinion as well. Thanks!
Permalink Submitted by Marvin Rotenberg on Thu, 2010-02-18 16:43
The rules regarding businesses under common control are complicated and apply on a case-by-case basis. You should consult with a tax advisor who is well-versed in this area and can provide advice based on your particular circumstances.
Absent applicability of the common controlled businesses rules, here’s an exceprt from IRS Publication 560 (Retirement Plans for Small Business) regarding the deferring of salary for both the employer (“you”) and employees under another plan in the same year they make deferrals under a SIMPLE IRA:
If you or an employee participates in any other qualified plan during the year and you or your employee have salary reduction contributions (elective deferrals) under those plans, the salary reduction contributions under a SIMPLE IRA plan also count toward the overall annual limit ($16,500 for 2009 and same for 2010) on exclusion of salary reduction contributions and other elective deferrals.
Catch-up contributions. A SIMPLE IRA plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. The catch-up contribution limit for 2009 and 2010 for SIMPLE IRA plans is $2,500. Salary reduction contributions are not treated as catch-up contributions for 2009 until they exceed $11,500 (same for 2010). However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts.
The catch-up contribution limit.
The excess of the participant’s compensation over the salary reduction contributions that are not catch-up contributions.
Marvin