SEP IRA / INDIV 401(K)
Hello and thanks up front for the help.
I have a self employed client who set up an Indiv 401k for his business. He now has hired his daughter to work for him and wants to fund something for her.
Our thought was to set up SEP IRAs for the two of them.
Two questions:
1 – Can he have an Indiv 401k and a SEP IRA or does he have to close the Indiv 401k and roll those funds into the SEP? (He would only contribute to the SEP)
2 – I understand for an employee qualifying for a SEP they have to be 21 and have to have worked any during at least 3 of previous 5 years with at least $550 in compensation in 2011. If she has not worked for him for 3 of last 5 can he waive this requirement or is this IRS mandated?
Thanks
Permalink Submitted by mk foss on Thu, 2012-03-29 01:39
The age and service requirements are allowable discrimination conditions, the employer can waive them.
He could expand the 401k to cover employees – the daughter would need to be informed about the ability to defer and the employer would need to make contributions to the plan on the same basis for each.
If he adopts a SEP for the business, the solo 401k can remain in place and just not be used. To terminate the 401k, the balance could be transferred to a SEP or another IRA. A final Form 5500 will be required.
In determining how much he can contribute to the SEP for himself, the conribution for the daughter would be deducted on Schedule C.