Businesses and SEP/Simple Maximization
A client operates a gym franchise under multiple business entities, each with different structures. Some of these entities are partnerships, others are operated as sole proprietorships, and a few are S-Corporations.
The client and their spouse currently receive salaries from two of the S-Corporations and have been contributing to a Simple Plan through this arrangement. They are now interested in setting up a SEP for the entities where they earn self-employment income, and do not receive payroll from any of the self-employment entities. The goal is to maximize their contributions ($66,000/each) to this new SEP while continuing their contributions to the existing Simple Plan.
Given that the entities are distinct and the Simple Plan is linked exclusively to the S-Corporations, is it permissible to also have a SEP that would only cover the self-employed income from the other business structures (partnerships, sole proprietorships)? Is there any issue with a “control group” since they are the same line of business, just operate in different cities with different partners (and therefore entity structures)? Any issues only contributing to their own SEPs and excluding employees in the other entities? If they put all of their self-employment business interests into one holding company (husband/wife as sole owners), could they then set up SEP IRA to contribute?
Permalink Submitted by Alan - IRA critic on Wed, 2024-05-08 21:46
The controlled group rules require that the sole proprietorships be included under the SIMPLE IRA. The partnerships also if the owner/spouse has 80% or more of the partnership interest. Since a SIMPLE IRA plan can be the only plan for such interests, a SEP for 2024 is not allowed and the employees (including owners) of the sole props must be included in the SIMPLE IRA. It is also possible that under these requirements the 100 employee limit for a SIMPLE IRA could be breached.