Too Many Cooks in The Kitchen
Client has hired me to figure out if a 401k/Profit Sharing plan is viable for her this year. As I was looking at her recent statements from 2 different ” financial wealth managers” I noticed she has made a $7,000 IRA contribution and also contributed $8,000 to her SEP -IRA for 2021 She has employees.
How does this affect her opening a 401k and Profit sharing for 2021? Can she still do it? Or, must she unravel her SEP and IRA contributions for 2021?
THis is perfect example of advisors not asking questions and just taking contributions. Any help or guidance with this would be great!
Permalink Submitted by William Tuttle on Thu, 2021-09-09 02:56
Are there any eligible employees? If so they must receive employer contributions at the exact same base rate as an owner.
In a 401k, eligible employees are entitled to make employee deferrals and receive employer contributions in the same manner as the owners.
Bottom line: Owners can not discriminate against their employees in employer retirement plans.
Is it a 5305-SEP IRA? A qualified plan (401k) can not be “maintained” for the same tax year as a 5305-SEP IRA. A SEP IRA is only maintained in tax years for which there are contributions. A 401k is maintained from adoption until termination regardless whether there are contributions or not.
If 2021 5305-SEP IRA contributions have been made. A 401k can not be adopted for 2021.
IRA contribution limits and employer retirement plan contribution limits are separate and do not interfere with each other.
I have only touched the surface on employer retirement plans. There is far more to it than just larger potential contributions.