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Simple IRA deferral question


Guest rustymonty

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Guest rustymonty

Can a former employee of company A who participated in the 401(k) plan of company A in 2005 and deferred $2,705 in salary deferrals establish their own Simple IRA at their own business (Company B) in the same calendar year? If they can, can they defer the full $10,000 plus matching or are their contributions reduced by the deferrals made into the 401(k). I was not sure given that the 2005 deferral limit for 401(k)'s is $14,000

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Assuming the entities are not controlled, related, or affiliated, Company B may start a SIMPLE IRA. The SIMPLE IRA limits applies to the SIMPLE IRA, and the $14,000/$18,000 limit applies in the aggregate.

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Guest rustymonty

Thank you for the reply. In this case, the employee of Company A did not have any ownership in Company A, but was paid a small amount of W2 and any additional income was paid via 1099 to the employee's firm (Company B). Earlier this year Company A decided to have this employee be an independent contractor and is paying his company via 1099 for his services. With this in mind I do not believe that control group is an issue. The employee's firm (Company B) generates its revenues by commissions paid from Company A, so I am wondering if in this case affiliated services group is an issue. Company A still maintains a 401(k) plan with matching and discretionary profit sharing so it not an attempt by Company A to not cover rank and file employees. Is affiliated service group an issue with that being said?

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Of course it is an issue. You must also decide if the individual is an really an "employee" notwithsatnding that they decided to pay the individual on a 1099 form.

Since the 401(k) limits are higher, the SIMPLE IRA limits eat up the 401(k) limits on an individual basis.

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