SEP issue if spouse is contributing to SIMPLE?
My first thought is no and I can’t find anything to say otherwise. However, the planner told me he ran into a case where they couldnt set up and IRA for a spouse because the husband was maxed out on his 401k. That was new to me.
This case is wife wants to do about 16K into her SEP, has one seasonal employee who doesn’t qualify under the 3 out of 5 rule so she is good there because she only wants to contribute for herself if possible. If the employee does become eligible it won’t be much. I understand the employer will just have to contribute the same percentage of gross income for all including herself?
Back to point, this client’s husband is doing like 16K into a SIMPLE, that has no effect on her SEP right? He just asked so I wanted to see if I am missing anything.
thanks in advance
Permalink Submitted by Alan - IRA critic on Tue, 2013-05-14 19:24
The husband’s allowable SIMPLE contribution and wife’s SEP contributions do not affect each other.
Permalink Submitted by Martin Helmer on Tue, 2013-05-14 22:58
Toby, you didn’t say whether the employment is related. For example, are husband and wife each 100 per cent owner of his/her own business? If yes, then no Sep would be allowed, and the unrelated employee might need to be covered by the SIMPLE (IRA?).
Permalink Submitted by Alan - IRA critic on Wed, 2013-05-15 00:11
Martin, could you clarify your statement with respect to totally separate and independent businesses operated by each spouse and the only common element is their marriage and joint return? Is employer aggregation still required in this case, and what is the code reference?
Permalink Submitted by Martin Helmer on Wed, 2013-05-15 01:33
IRC sections 414(b) and (c) indicate controlled groups must be considered by both 408(k) SEPs and 408(p) SIMPLE IRAs. 414(b) refers us to 1563 for fact situations in which common ownership is attributed to a spouse.
Permalink Submitted by Alan - IRA critic on Wed, 2013-05-15 18:53
Thanks. Looking at IRS Reg 1.414(c)-4 (b)(5) attached, there are exceptions to spousal attribution that appear to apply to this case, but not sure if I am interpreting them correctly. Your thoughts? http://www.taxalmanac.org/index.php/Treasury_Regulations,_Subchapter_A,_Sec._1.414(c)-4
Permalink Submitted by Martin Helmer on Wed, 2013-05-15 22:07
Like most questions on these boards, insufficient facts have been provided. We dont’t know if we’re dealing with proprietorships, partnerships, or corpororations, not to mention the other criteria in the code and regs that we need to know to give a final answer.