Guest fiddler Posted March 19, 2007 Share Posted March 19, 2007 We recently took over a client that has a 401(k) Plan. We found out after the fact that the owner's spouse own's a separate company and sponsors a Simple IRA. They have minor aged children which makes them a controlled group. They were told by their prior TPA that this was allowed since when tested together, they passed 410(b) and 401(a)(4). Is this OK, or is my client prohibited from having a 401(k) and must he also provide a Simple IRA? If the 401(k) was not allowed, what do we do to bring them back into compliance? Link to comment Share on other sites More sharing options...
Appleby Posted March 22, 2007 Share Posted March 22, 2007 Check IRC 1563(e)(5) ...for corporations Life and Death Planning for Retirement Benefits by Natalie B. Choatehttps://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/ www.DeniseAppleby.com Link to comment Share on other sites More sharing options...
J Simmons Posted March 22, 2007 Share Posted March 22, 2007 Your client is not prevented from having the 401k because his wife's business has the SIMPLE IRA plan. Rather, it is the wife's business that cannot have a SIMPLE IRA for a year that her husband's business had or has a 401k. IRC 408p. It's the SIMPLE IRA that needs to be undone. That would require re-doing tax returns and W-2s, to eliminate the claimed deductions. Implications to your client's 401k grow out of the fact that his wife has a business, and presumably employees. They have to be taken into account in the nondiscrimination and minimum coverage testing of your client's 401k. That might cause your client's 401k to be disqualified. As for the prior TPA's position that the 401k could be combined with the the SIMPLE IRA, it can't because there are no proper SIMPLE IRA accruals in the same year that the 401k existed. Barring that, I'd suspect that the 401k plan does not provide, in its documents, that it is permissively aggregated with the SIMPLE IRA. John Simmons johnsimmonslaw@gmail.com Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation. Link to comment Share on other sites More sharing options...
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