Discussion:SEP Rollover into Solo 401(k)?
From TaxAlmanac
Discussion Forum Index --> Basic Tax Questions --> SEP Rollover into Solo 401(k)?
Discussion Forum Index --> Tax Questions --> SEP Rollover into Solo 401(k)?
Mr. purple (talk|edits) said: | 14 May 2008 |
| As a small business owner, upon termination of a SEP plan, is it possible to rollover contributed amounts in to a Solo 401(k)? I'm guessing no because the contribution limits for SEP's are quite higher than Solo 401(k)? Thanks. | |
| 14 May 2008 | |
| That depends on whether the 401(k) plan document allows rollovers of that type. BTW, solo 401(k) plans can have significantly higher contribution limits than SEPs depending on the funding formula and compensation levels. My thought..why not just rollover the SEP into a traditional IRA? | |
Mr. purple (talk|edits) said: | 14 May 2008 |
| Thanks Marcilio,
He wants to keep contributing higher amounts and traditional IRA only allows $5k. His company is growing and keeping a SEP for participating employees is becoming quite expensive. So it sounds like when creating the Solo 401(k), all he needs is a statement stating his previous, personal SEP contributions can be rolled over? | |
| 14 May 2008 | |
| "Participating employees"??? Does your client have employees other than self and spouse? Only participants allowed for a Solo 401K are owner and spouse. If company has employees other than owner and spouse Solo 401K is not the correct plan. | |
Mr. purple (talk|edits) said: | 14 May 2008 |
| Hi Jdug,
That's my point. He doesn't want to continue funding employee's contributions, currently under the SEP system, hence his wanting to move to Solo 401(k). If you have a SEP, you have to allow employees to participate, unlike Solo 401(k). | |
| 14 May 2008 | |
| Mr. Purple, I was just about to post an identical follow-up to Jdugancpa's post regarding participating employees. Glad I hit the refresh button before I pulled the trigger.
If your client can't roll his SEP into his Owner K, he could always roll it into a Traditional IRA and fund it along with his Owner K. Of course, depending on his MAGI, the Traditional IRA contributions may be non-deductible...and whether or not non-deductible contributions are a good idea is a whole other thread. | |
| 14 May 2008 | |
| Mr. Purple, I don't think we are communicating correctly. If he has employees he CANNOT do a solo 401K. He can do a regular 401K but not a solo. If the cost of a regular 401K seems too high, you may want to steer him toward a SIMPLE. He will not be able to get as much into a SIMPLE, but most of the dollars going to the EE IRA's will be EE dollars, not ER dollars. | |
| 14 May 2008 | |
| Agree with JD, the simple plan looks like a winner here. If the employer has fewer than 100 employees and wants lower contribution limits. The plus side is they are cheap to setup, cost the employer very little intially and max cost out of pocket to employer is 3% of employee wages if employee contributes 3% or flat 2%.
Downside is that the contribution limits are lower than the 401k 10.5k for under 50 and 13k for over 50. So the moral to the story is there is no silver bullet. | |
| 15 May 2008 | |
| Mr. purple, you need to talk to a pension designer/administrator and discuss the feasibilty of various plans. Last time I looked, there were about 47 different kinds of plans. You haven't asked the right questions regarding compensation limits, contribution formulas, plan administration, etc. More important, you haven't expressed knowledge of the client's needs beyond wanting to put aside more money.
This is a highly technical area of the law, and your client needs to engage someone who has the expertise to guide him. You can be the greatest help to your client by interviewing professionals in the area and then making referrals. Your client will love you for it. | |
