Jump to content

Sep & Simple, Same Ownership -- Excesses


Guest LTurner

Recommended Posts

Guest LTurner

new client has 100% ownership of C-Corp and S-Corp businesses. Family members are all paid from C Corp and all employees are paid from S Corp

C Corp has a SEP plan (was not offered to S Corp) This has existed for some time (mom, dad, and kids only)

S Corp has a SIMPLE plan (not as old as the SEP) includes employees only - no family

I presume this is a problem since there is common ownership, as the SEP should have included the employees from the S Corp.

What needs to be done to correct or fix this situation? Or is this really ok?

Link to comment
Share on other sites

  • 2 weeks later...

Neither plan is any good. The SEP is discriminatory; and the maximum allowable contribution percentage, as corrected under proposed regulations is 0 percent. The SIMPLE (now a "Complex") is not valid (it failed to cover all employees and because there were contributions to another plan). I'm assuming there is no union exclusion applicable or other wierd facts.

Nondeductible E/er contributions to both plans are subject to a 10 percent CUMMULATIVE non-deductible excise until corrected (i.e., amounts included on applicable Forms W-2). [Form 5330]

The excess to SEP are subject to a CUMMULATIVE 6 percent nondeductible excise tax until corrected. [Form 5329]

It does not appear that the 6 percent tax applies to a SIMPLE-IRA since it is ommited from Form 5329 (a SIMPLE IRA is not a traditional IRA). Code Section 4973 doesn't specifically mention it either. Arguably, excesses are to be reported in box 1 of Form W-2 (but not box 12). [see intructions on back of Form W-2.] Arguably, the amounts distributed will be taxable (again).

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...