SEP

Submitted by Shawn Danziger on Mon, 2016-12-19 16:20

I have had a 401k/profit sharing the last few years where myself and my wife have contributed. Now we have two employees that are older and I ammended to a safe harbor 401k and will likely not contribute to the profit sharing component and stick only with the 401k since I do not want to add profit sharing contributions for employees at this time. the setup of the plan is for 2017 which leaves me high and dry for 2016 since I can’t contribute the former plan without including them since they were technically eligible. Can I setup a SEP plan for tax year 2016 and do it for one year so I can max out again without any issue of making contributions for employees for 2016?



Submitted by William Tuttle on Mon, 2016-12-19 17:43

  • I assume you had a solo 401k plan, is this correct? When did your employees start, how many hours do they work? The IRS allows a one year term of service >= 1000 hours restriction before employees become eligible. This option must be available on the adoption agreement (Vanguard’s does not) and selected by you. Did you?
  • If they are eligble for the 401k, the SEP IRA is not likely an easy option. You can not have a 5305-SEP at the same time as any other qulaified plan. Most of the mainstream providers only offer 5305-SEP IRAs. You would need an IRS approved prototype or individually designed plan. This would likely come thru a TPA
  • However, even if you were able to open an allowed type of SEP IRA, I am not sure if you could make profit sharing contributions to yourselves and not them. A SEP IRA on its own does require employees to have worked for you in three of the last five years to be eligible. However, they would be able to receive profit sharing contributions thru the 401k.
  • The two plans could very likely be looked at in unison for anti-discrimnation rules. Alan?

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