SEP IRA and Solo 401k
We have a client whose wife has her own business (schedule C income) and would like to contribute her employee portion to her Solo 401k, and her employer portion to her SEP IRA for a variety of reasons. We believe it is acceptable for her to contribute to both of the accounts as long as she stays within compensation/contribution limits. Do those out there also think this is acceptable?
Thank you for your comments,
Permalink Submitted by Alan - IRA critic on Thu, 2015-06-04 18:08
Yes, but there is no increase in contributions when using the SEP for the profit sharing contribution instead of the solo K. It would be interesting to know what the perceived benefit is for using the SEP. Is she about to hire an employee, which would not be possible under the solo K?
Permalink Submitted by Eric Schmid on Thu, 2015-06-04 18:54
Thanks for your comments Alan. In actuality, in this case, there are not any perceived benefits. It’s more of a case of funds / accounts held with different advisors that she would like to “appease”…so some funds to the solo 401k and some funds to the SEP.
Permalink Submitted by Alan - IRA critic on Thu, 2015-06-04 20:32
Forgot to add – If the SEP is under Form 5305, another qualified plan is not permitted. This would require substituting an individually designed SEP document. See when not to use 5305 SEP: http://www.irs.gov/pub/irs-pdf/f5305sep.pdf