CLIENT WITH TWO COMPANIES SEP IRA
HAVE CLIENT WITH TWO COMPANIES:
1. COMPUTER COMPANY LLC WHICH HAS NO RETIREMENT PLAN FOR TWO EMPLOYEES .
2. AIRBNB LLC COMPANY WHICH SHE HAS TWO HOUSES SHE RENTS OUT. SHE MADE 300K IN 2021 RENTING THE HOMES OUT. SHE IS THE ONLY EMPLOYEE. SHE DOES ALL THE CLEANING, AGREEMENTS AND ADVERTISING.
QUESTIONS:
A.. CAN SHE ESTABLISH A SEP-IRA FOR THE AIRBNB AND NOT THE COMPUTER COMPANY?
B. DOES THE SEP-IRA FOR THE AIRBNB HAVE TO BE ESTABLISHED AND FUNDED PRIOR TO 12-31-21 OR DOES SHE DOES TIME TO EST AND FUND THE SEP-IRA PRIOR TO 4-15-21?
C. SHE CANNOT FUND AN INDIVIUAL IRA TOO, CORRECT?
D. ONE OF HER INVESTMENT ACCOUNTS WE HAVE ARE FROM A TRANSFER FROM AN OLD SEP IRA SHE HAD WITH THE COMPUTER COMPANY PRIOR TO ANY EMPLOYEES (SHE STOPPED THE SEP-IRA WHEN HIRED SEVERAL EMPLOYEES AND FUNDED HER OWN IND IRA). CAN SHE JUST CONTRIBUTE TO THE SEP IRA WITH THE INVESTMENT COMPANY WE HAVE ALREADY OR DO WE HAVE TO WRITE A NEW SEP-IRA FOR THE AIRBNB?
THANK YOU FOR ANY ASSISTANCE (MERRY CHRISTMAS TO YOU ALL AND HAVE A BLESSED NEW YEAR)
DOUGLAS
Permalink Submitted by William Tuttle on Fri, 2021-12-24 11:33
A. Not likely.
First, it would have to be establish that the client’s Airbnb’s are even eligible to adopt an employer retirement plan. It is a high hurdle to qualify as being a Real Estate Professional for the Airbnb income to be considered active investment income and not passive investment income. That does not allow you to adopt an employer retirement plan.
It is a very high hurdle to qualify as being “engaged in the business of real estate” to adopt an employer retirement plan. Even if eligible, the computer company and the Airbnb would be a Controlled Group. The tax code and the IRS would consider the two businesses a single employer for employer retirement plan purposes.
All eligible employees of both businesses would have to receive employer contributions at the exact same percentage of compensation. You could adopt the SEP IRA 3 of five year employee eligibility restriction, but it would apply to all employees including the client and length of service at both businesses would apply.
B. An employer has until their tax filing deadline including extensions to adopt and make employer contributions to a SEP IRA.
C. Any taxpayer can contribute to a traditional IRA. However, there is a traditional IRA deduction income limit for anyone who is an active participant in an employer retirement plan. An employee is considered an active participant for any year in which they received SEP IRA contributions.
E.g. If they received SEP IRA contributions for the 2021 tax year in 2022, they would be considered an active participant for 2022 but not 2021. They could make a 2021 deductible traditional IRA contribution, but not 2022. Also, with significant pre-tax balances in traditional, SEP and/or SIMPLE IRA accounts a Backdoor Roth would not be a good idea.
While technically it could be amended, but would be better to adopt a new SEP IRA plan.
Permalink Submitted by Douglas Bauerband on Mon, 2021-12-27 15:52
B. An employer has until their tax filing deadline including extensions to adopt and make employer contributions to a SEP IRA.
WHEN YOU SAY ADOPT,THAT MEANS SHE CAN COMPLETE AN APPLICATION PRIOR TO TAX FILING DEADLINE IN APRIL OR EXTENSION AND DOES NOT HAVE TO HAVE AN APPLICATION IN PRIOR TO 12-31-21, CORRECT?IS THE ABOVE THE SAME WITH A SIMPLE IRA?THANK YOUDOUG