Retirement contributions
I want to confirm the following may be done for a client – as I believe it may:
1. Client has a Simple IRA thru Company A (which he owns 100%). Client is sole employee of Company A; it’s an S. Corp.
2. Client is also employed by Company B (he does not own 100% – his mother does); it’s also an S. Corp.
3. Client may (a) contribute to a Simple IRA thru Company A and (b) contribute to a Solo 401(k)/Profit Sharing Plan thru Company B.
4. To the extent Client (who is <50) maxes out the $12k to the Simple IRA in 2014, he may only defer $5.5k into the 401(k) Plan (for a total of $17.5k in elective salary deferrals).
5. Company A would match 3% of his compensation in the Simple IRA; Company B would match whatever the profit sharing formula is (say 25% of comp.).
6. The Solo 401(k)/Profit Sharing Plan thru Company B may allow Roth elective salary deferrals.
7. Client, who earns too much to contribute to a Roth IRA, may make after-tax/Roth elective salary deferrals into Company B’s Solo 401(k)/Profit Sharing Plan – which would be matched by the company as pre-tax contributions. Accordingly, the 401(k)/Profit Sharing Plan would have 2 buckets – one for the Roth and one for the Traditional.
8. As long as permitted by the Plan Document, Client may perform an In-Service Distribution and roll-over, on a trustee-to-trustee basis (direct rollover), each year the Roth 401(k)/Profit Sharing Plan account balance into an already existing (or newly created) Roth Conversion IRA. A new Roth Conversion IRA would be recommended to the extent Client is interested in possibly recharacterizing the converted amounts.
9. Given the above set-up, the Client may make both pre-tax contributions (up to $12k in the Simple IRA) and/or Roth/after-tax contributions into the 401(k)/Profit Sharing Plan (up to $17.5k in the 401(k) – although the combined Simple IRA and 401(k)/Profit Sharing Plan elective salary deferrals are $17.5k). Client would receive matches noted previously provided the aggregate amounts contributed into both Plans (employee and employer) is $52k in 2014.
10. If desired, Client may also make non-deductible IRA contributions, of up to $5.5k, which may be converted into a Roth IRA.
Please just confirm that the above is correct subject to everything being vetted by an ERISA attorney and/or actuarial firm. Thank you.
Jason
Permalink Submitted by Alan - IRA critic on Mon, 2014-03-03 00:23
Permalink Submitted by Jason Hochstadt on Mon, 2014-03-03 14:59
Hi Alan, Thanks for the reply. Understood regarding your replies as #3 (you are correct), #8 and #10. Will check with an ERISA Attorney with respect to #9 as I believe the attribution rules may come into afffect in this instance. Thank you once again. Jason
Permalink Submitted by Martin Helmer on Wed, 2014-03-05 03:40
It appears there is no controlled group, assuming the son is at least age 21. However, you must also get assurance there’s no affiliated service group. See Form 8388, aka worksheet 10, and publication 7005, aka explanation number 10. These are tools the irs might use if you were to request such a determination from them. Note that section 415 isn’t applicable to SIMPLE IRas. The exclusive plan rule means there will never be aggregation of a SIMPL with another plan. For an individual under age 50, the maximum employer contribution is $12,000, the same amount as the maximum employee deferral. It would take $400,000 of compensation matched at 3 percent to reach that. As for solo-k or individual k or whatever else such a plan might be called, it’s not as exclusive as it first appears. YOu can use a regular 401(k) plan document to achieve the same results. That is, since everyone in our demograghics is an HCE, there’s no concern about coverage or nondiscrimination. The 2 employees can defer the maximum, and the employercan contribute 25 percent with no worries.