SEP second try
I posted the below a few weeks ago and received zero responses. This is the first time I’ve been dissed on this forum. I am just surprised because no one, even my professional contacts and colleagues seem to want to touch this one. Is the SEP vs. profit share discussion the 3rd rail of retirement plans? THere are some pretty experienced and smart people reading this forum so I’d like to give this another shot before I give up….
I have a client who are a group of doctors within a hospital. They are set up as partnership and none of these 20 or so doctors are employees of the hospital. They receive K1 income as partners. They currently have a profit share 401k. Some of thse doctors are asking me if they can drop out of the plan and instead do a SEP. If you take a typical doctor who has no outside income ( such as consulting) and only has ths k1 partnership income .. can he do a SEP? I am not asking if the partnership as a whole can do a SEP but I would like to know if an individual doctor underthese circumstances can do so.
chuck.lore
Posts: 154
Joined: Wed Dec 31, 1969 7:00 pm
Permalink Submitted by Alan Spross on Fri, 2009-10-02 03:31
Chuck,
Without a high degree of confidence, I suspect that the doctors cannot set up SEP IRAs unless they become self employed, ie sell out their partnership interests to the other partners and then become independent contractors to the partnership.
Only an employer can start a SEP IRA, and the partnership is the employer, not the individual partners.
Hopefully, Mary Kay can confirm this or correct it.
Permalink Submitted by mk foss on Fri, 2009-10-02 16:30
I was hoping that Denise would take this one.
First off, normally if you are eligible to participate in a 401k plan and choose not to do so, you are considered to be participating with a 0% deferral. That makes it difficult to “drop out” of the plan – but where there’s a will, there’s often a way.
Many SEP plans have just an owner-employee. But as Alan says, the partnership rather than the individual doctors is the employer. I know of partnerships comprised of corporations where the partnership distributes earnings to the corporate partner which pays a salary to the owner-employee of the corporation. You see this structure when the service providers are trying to shield themselves from potential malpractice of the other partners. Even in those cases, the separate corporations must have comparable plans and may have to cover partnership employees to avoid violating the convoluted standards imposed by ERISA.
I think people on this forum focus on tax aspects of taking money out of plans and are not as confident about some of the rules for putting the money in.
Permalink Submitted by charles lore on Sat, 2009-10-03 00:46
Thank you both. I had never really of it that way but maybe someone can offer a course in contribution planning instead of distribution planning..