Max 401k + SEP(s)
A person is affiliated with three companies. He has 25% ownership in company A, 100% ownership in company B and 100% ownership in company C. In company A, he has a 401(k) where he maxes his personal deferrals and makes a profit sharing contribution to maximize the $58K total limit.
For Company B and C, can he have SEPs for each where he defers the full 25% employer contribution amount up to $58,000?
Permalink Submitted by William Tuttle on Thu, 2021-12-09 22:13
If the client only has a 25% ownership in company A, how can “they make” a profit sharing contribution. The employer makes non-elective (AKA profit-sharing) employer contributions. If company A provides any services to company B or Company C or provides services to third parties this would be an Affiliated Service with company B and C which are a Controlled Group.
Controlled and Affiliated Service Groups are considered by the IRS to be a single employer for employer retirement plan purposes and subject to a single annual addition limit.
At a minimum contributions to Company B and C’s employer retirement plans would be limited to a single annual addition limit.
Note: Each spouse is considered to own the other spouses interest in any business. Also, a common minor child will cause businesses to be considered a Controlled Group.
Is company A, completely independent of companies B & C?
Permalink Submitted by Khalil Andraos on Thu, 2021-12-09 22:39
The person is 1 of 4 partners in company A so they collectively decide to make the full profit sharing contribution to reach the $58K total limit every year. Company B and C do not provide any sercices to A. They are seperate speaking and consulting companies the person runs part time.
Permalink Submitted by William Tuttle on Thu, 2021-12-09 23:54
One for company A and one for Companies B & C if they don’t provide services to common third parties or family attribution is involved.