Sep 2021
Client has been contributing to her SEP IRA in 2021 but not making deposits on her employee who has been working with the firm for 3 years. I advised her that she needs to be depositing at the same time and the same percentage.
Employer/client wants to also set up a DB plan in 2021 or a Simple Plan
I am inclined to tell her that she cannot set up a Simple or a DEfined Benefit plan in 2021.
Am I correct?
Thank you
Permalink Submitted by William Tuttle on Tue, 2021-09-14 02:18
She is in violation of anti-discrimination laws and regulations.
She needs to immediately start making employer contributions to all eligible employees at the exact same rate of compensation* in the same manner and timing as her own contributions.
She needs to find a retirement plan specialist to use the IRS Employee Plans Compliance Resolution System (EPCRS) to fix this error.
A corrective contribution will have to be made that would place affected employees in the position they would’ve been in if there were no operational plan mistakes.
A SIMPLE IRA must be the only plan for a given tax year.
A qualified plan (401k, PS or DB) and a 5305-SEP IRA can not be maintained for the same tax year.
A prototype SEP IRA and a DB plan can be maintained for the same tax year. However, the maximum SEP IRA contribution rate would be 6% of compensation*.
Not to mention, if she doesn’t like making SEP IRA contributions for her employee, she won’t like making DB contributions for her employee.
*While a W-2 employee’s contribution rate is exactly the same as the base contribution rate. A self-employed individuals maximum contribution rate is determined from the table in IRS publication 560. This is then applied to their net earnings from self-employment (earned income) = business profit – 1/2 SE tax.