Business employer plan
I’m opening a business. I plan on having 4 employees. Can I open a SEP or i401k account for myself and not offer anything to my employees.
I’m opening a business. I plan on having 4 employees. Can I open a SEP or i401k account for myself and not offer anything to my employees.
Permalink Submitted by Alan Spross on Thu, 2012-06-28 19:47
Basically, no.
For a solo K, the only employee you are allowed to have is your spouse.
For a SEP IRA, there is more flexibility but it is still difficult to make contributions for yourself and not for employees. For example, you can elect to require a 3 year employment period for your employees before making contributions, but YOU are treated as an employee yourself for these purposes. If you adopted the 3 year period, you not contribute until after that time, but if your employees had frequent turnover, you would probably end up making contributions for very few of them since none of them would make it to the 4th year.
You could also go for a 2 year or 1 year requirement in which you could make your own contributions sooner, but would have to make more employee contributions. You also do not have to contribute for employees under 21 or any covered by a union plan.
With a SEP IRA, you are also free to contribute nothing for everyone in any given year.
Permalink Submitted by donna messinger on Thu, 2012-06-28 20:09
So, it seems like I need a different tactic. Perhaps I could just open a DB plan for me (HC) and not offer any employer retirement plan. That would work. The other thing I could do is have my employee set up a payroll deduction IRA, then they make their own contribution. Does that sound right?