Slott Report Mailbag: Can An Employer Have Both a SEP IRA and SIMPLE IRA Plan For Their Employees?

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

The Slott Report Mailbag is back with three consumer questions that run the gambit of IRA-distribution and retirement planning. Can you use an IRA as security for a loan? How do you handle inherited IRAs for you and your wife? Can an employer have both a SEP and a SIMPLE plan for their employees? You have come to the right place for the answers. As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find one in your area at this link.

1.

Can an IRA or any qualified account be used as a personal guarantee? I do not have the funds to put up a personal guarantee for the purchase of weekly goods to run my business and want to know if I can use the IRA as a personal guarantee.

Answer:
No. IRAs cannot be pledged as security for a loan. If you do pledge the IRA as collateral for a loan, the amount you pledged will be taxable to you, plus a 10% early distribution penalty if you’re under age 59 ½.

2.

I have several questions that I would appreciate you answering.

1. Is the 2008 Edition of Ed Slott’s Book, “PARLAY YOUR IRA INTO A FAMILY FORTUNE” the latest edition?

2. Stretch IRAs: My wife and I each have Individual IRAs, we are the beneficiaries for each other’s IRA, with our children (2) as contingent beneficiaries, each at 50%. My wife’s IRA is much smaller than mine, and if she passes first I would expect to disclaim her IRA, allowing it to pass to our children.

If I pass first I have suggested that she disclaim as much as 65% of my IRA.

We understand that in either case, inherited IRAs would need to be set-up in the format for that.

My question pertains to the situation where I pass first, my spouse disclaims part of my IRA, the Inherited IRAs are set up correctly, and then she passes. Can the remaining portion of my IRA be transferred into the (“my”) existing Inherited IRAs, or do two more inherited IRAs need to be set up, and if so how would they be titled? Do you discuss this in your book?

Thank you for your response to these questions.

Regards,

C.W. (Mike) Craychee

Answer:
After your death, she must address the part of your IRA that she did not disclaim before she dies. If she does not make that part her own IRA via a spousal rollover, and then she dies, that part will continue to be an inherited IRA. It will go to the beneficiary she named on that inherited IRA, or it will most likely go to her estate if she didn’t name a beneficiary. If instead, she makes the inherited account her own IRA via a spousal rollover before she dies, she should name your children as the beneficiary of her IRA. After she dies, those funds will be inherited IRAs for each child and they can use their own life expectancy (stretch IRA) to take distributions. Under any scenario, your children will end up with two inherited IRAs, one inherited from their father and one inherited from their mother. IRAs inherited from different individuals cannot be combined.

2008 is the latest version of “Parlay Your IRA Into a Family Fortune.” You can purchase it here.

3. Can an employer have both a SIMPLE and a SEP?

Answer:
An employer that has a SIMPLE IRA plan cannot maintain another qualified plan, such as a SEP, in which any employees receive contributions. An employee who works for two different employers in the same year could be covered by a SEP from one employer and a SIMPLE IRA plan from the other.