Self-Employed Contributions to Tax Qualified Plans post 70.5

Submitted by Bret Steffenauer on Wed, 2018-09-26 17:51

Can a self-employed individual that owns more than 2% of the company (ex. 100% owner) contribute to a tax deferred qualified plan post 70.5 (SIMPLE, SEP or 401(k))?

Our belief is that they can contribute to a Roth IRA, but not to a tax deferred qualified plan. Are there certain plans that an owner would be able to continue contributing to post 70.5?

We do believe that a non-owner employee can continue to contribute post 70.5, but not an owner.



Submitted by David Mertz on Wed, 2018-09-26 18:54

  • Even though the owner is over age 70½, the owner is still an eligible employee and permitted to contribute to a qualified plan (SIMPLE, SEP or 401(k)) based on net earnings from self-employment, but they will also be subject to RMDs from the plan (for a 401(k) they are required to take RMDS if they are a more than 5% owner of the business).  Being over age 70½ and subject to RMDs does not make them ineligible to contribute.  In fact, if they make contributions to a qualified plan for non-owner employees, they MUST also make a contribution for themselves in the same manner as for the non-owner employees.
  • What the individual over age 70½ cannot do is make a regular personal contribution to a traditional IRA, but this limitation does not apply to employer plans.
  • See IRS Pub 560 for more details.  Search it  for “age 70”:  https://www.irs.gov/pub/irs-pdf/p560.pdf

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