Can they still contribute to their SEP IRA’s
I have a client who is a co-owner of an LLC. Over the last couple of year the company has grown and they have setup a 401k plan for their w2 employees via PayChex. Prior to this the both partners contributed retirement money to separately established SEP IRAs. During that time they did not have w2 employees.
Now that they have established the 401k for their employees can they, as owners of the company, still contribute to their SEP IRAs? Neither partners participate in the company 401k plan and are not paid as w2 employees by the company (they get K1s).
Also, their accountant thinks they can continue using the SEP, but he admits that he is not as familiar with small business retirement options. I am hoping you can provide a definitive answer.
Thanks
Permalink Submitted by mk foss on Wed, 2012-05-02 02:56
When they established the SEP they set criteria for covering employees – usually 3 years of service and age 21. If they use the SEP for themselves, they would have to cover employees who met the SEP criteria. Many 401k plans have K-1 participants as well as W-2 participants – every large law firm for example. They need to participate in the 401k plan if they want to make retirement contributions. There has been some discussion as to when a SE person must pay in deferrals to a 401(k) plan – some say they can’t determine whether there are profits to defer until after year end and others say that the deferals must be paid in by December 31.
With employees I would think that they’d have a TPA instead of just relying on Paychex. They should have done more research before starting the plan.