Changing Funded SEP to Solo K Mid- Year
Client started the year with his SEP IRA and funds it monthly. He is going to make more money this year, wants to contribute more into a retirement plan than the 25% of wages, without increasing his wages. Can I open a Solo K for him, stop making contributions to the SEP IRA, and have him fund the Solo K instead? Or since I started the year with the SEP and have funded it, am I stuck with the SEP for the entire year and can’t consider the Solo K until 2016? If I can do the Solo K for 2015, do I need to do a return of excess from the money he contributed to his SEP. Thank you for your help and expertise.
Permalink Submitted by Alan - IRA critic on Thu, 2015-03-12 23:09
Permalink Submitted by Todd Martin on Fri, 2015-03-13 20:30
The client is over 50. I can then open his Solo K and fund it fully in employee deferrals at $24,000. However if he wanted to do profit sharing into his 401k and he had contributed $3,000 to his SEP IRA during the year, the maximum he could do of profit sharing if his wages allowed it would be $26,000 ($53,000 – $24,000 employee defferals – $3,000 SEP IRA contributions), correct? Do you know if a Solo K will allow for after tax Roth contributions as well as pre-tax traditional contributions? Thank you Alan. I always appreciate your expertise.
Permalink Submitted by Alan - IRA critic on Fri, 2015-03-13 22:17
Since client is over 50, the total contributions for all plans is limited to 59k (the 6k catchup also increases the total to 59k). So the max for the 401k for all contributions including profit sharing would be 59k less 24k less 3k = 32k. A solo K can also include a designated Roth option, but some providers may not offer it.
Permalink Submitted by Todd Martin on Fri, 2015-03-13 23:17
Can I rollover the SEP IRA and combine it with the Individual K? Or can I only roll it over to an TIRA?
Permalink Submitted by Alan - IRA critic on Fri, 2015-03-13 23:41
It can be rolled into the solo K if the plan provisions include IRA rollovers.
Permalink Submitted by John Peterson on Sat, 2015-03-14 14:14
Need to confirm that your SEP document doesn’t contain the common provision that it only “works” for a year in which it’s the only plan.Might be better off just calling the $3,000 already contributed a TIRA contribution for 2015 or better yet a SEP contribution for 2014?