SEP IRA
I have a unique situation. I have a client who is the only employee of an undercover task force agency. They have their own FEIN but the officers are employees of the State police or their own departments. So, she is the only employee of this task force as she is not law enforcement. She had set up a SIMPLE IRA and it has proven to be a nightmare. The task force is willing to fund the SIMPLE or SEP, but I am not sure she can open a SEP as the only employee when she is a non owner. Can you tell me if this is possible? If so, this would be very simple as the task force could simply make an employer contribution to the SEP on her behalf.
Permalink Submitted by William Tuttle on Wed, 2016-12-21 17:03
She can not set up either plan, the employer must do that. She can set up either account with the employer’s cooperation. Either a SIMPLE IRA or a SEP IRA can have a single employee. What do you mean by the statement; “The task force is willing to fund the SIMPLE or SEP.” With a SIMPLE IRA the employee can make an elective deferral of $12,500 ($15,500, age >= 50), but the maximum employer match is 3% of compensation. On the other hand, with a SEP IRA the maximum employer contribution is 25% of compensation, but there is no employee deferral possible. Also, just what is the nightmare about the SIMPLE IRA.
Permalink Submitted by Krista McBeath on Wed, 2016-12-21 19:16
Sorry, I wasn’t clear. 3 years ago she was given poor information my a broker. The SIMPLE was set up and she was contributing to it and the employer was matching. The employer started putting more money into the simple, more than she was contributing, so they are just now dealing with the SIMPLE having excess contributions and having those removed. That is all done. They employer is willing to contribute more than she does, and they are willing to contribute even if she doesn’t. I was thinking if they establish a SEP for her, then the employer can contribute more and she can contribute if she wishes. Using the IRS SEP 5305 form would make this easy. Neither would exceed 25% of compensation. When I said she set up the plan, that is because she physically did the paperwork as the only employee. The task force is a non profit.
Permalink Submitted by William Tuttle on Wed, 2016-12-21 20:04
She can not make any employee contributions to a SEP IRA.
Permalink Submitted by Martin Brook on Thu, 2016-12-22 01:33
Are SEP IRA contributions added back to AGI to calculate the MAGI used to determine income related Medicare premiums?
Permalink Submitted by Alan - IRA critic on Thu, 2016-12-22 01:37
No. The only income that is added to AGI in determining MAGI for IRMAA purposes is tax exempt income.