SIMPLE IRA and solo 401(k)
A is a 50% owner of a business with a SIMPLE IRA plan. A contributes the maximum to the SIMPLE IRA including catch-up contributions. A also has approximately $10-20k of Schedule C income from an unrelated business (different business activity). Can A set up a solo 401(k) for the Schedule C income? If so, is the allowable maximum 401(k) contribution reduced by A’s contributions to the SIMPLE IRA plan through his W-2 income?
Permalink Submitted by Alan - IRA critic on Wed, 2013-11-13 03:09
Businesses are unrelated, but that may not take care of the entire ASG rules which are very complex. If other 50% owner is totally unrelated as are the busineses, the solo K should be OK to establish. Once established the 402g elective deferral limits for the solo K are reduced by the amount of the SIMPLE IRA salary reductions. Likewise, the total catch up contribution limit of 5,500 cannot be exceeded for both plans catch up contributions. An employer contribution to the solo K would still be allowed however.
Permalink Submitted by Robert Fairey on Wed, 2013-11-13 14:33
The other 50% owner has nothing to do with the Schedule C business. Therefore, it seems that the solo 401(k) contribution could be $8500 plus the employer contribution. The $8500 consists of: (1) $5000 (the 401(k) limit of $17,500 less $12,000 of employee contributions to the SIMPLE plan); and (2) catch-up contributions of $3000 (the 401(k) limit of $5,500 less $2,500 of employee contributions to the SIMPLE plan). Correct?As an alternative, assume the Schedule C income from the separate business was $100k. The owner could establish a SEP plan for the separate Schedule C income and that contribution limit would not be effected by the SIMPLE contributions. Correct?
Permalink Submitted by Alan - IRA critic on Wed, 2013-11-13 18:51
Yes, all correct.