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2 Owners, 3 Companies, 3 plans


Zoey

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A CPA just sent this question to me.  None of these are my clients, so this is all of the information that I have...

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2 dentists each have corporations.  They formed a 3rd LLC to jointly own.  50/50 Corps own the LLC. Profits flow through to corps.  Docs pay themselves through corps.  LLC will have a 401(k).  Can doc have a SEP?  Would there be any limitations?

Maybe my brain is just fried, or maybe I'm confused, but I can't wrap my head around this one (and I'm not a CPA).  If the profits flow through to the corps, and the docs are paid through the corps, where is the income from the LLC (to even have a 401(k))?  But assuming there is income from the LLC, my quick response would be "yes" that the doc(s) could have separate SEP's for the corps.  But would the combined limit apply?  Again, my quick response would have been "yes" (since each have ownership in both).   Then I thought, why would they want to?  The only reason I could think of, that they would want a separate SEP in addition to the 401(k), would be to have a deductibile contribution for one company (Corp), but not the other (LLC)...?  I don't know if they have employees, or if it would matter, but I would assume that they do.

Any input would be greatly appreciated.

Thanks!

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Yeah if somehow it is not an ASG you are fine since it's not a controlled group and neither has more than 50% of the LLC so you also don't need to worry about 415 aggregation.

However I got the feeling that all profits from LLC flowed back to the corps which makes me think they are sharing employees and trying to get a max SEP deduction/contribution in their own Dentist Corp which probably have both of them as the only employees while not covering any of their staff which is probably a 401(k) deferral only plan. But maybe that's just the cynic in me.

 

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That's exactly my concern too, Lou.  I don't think you are being cynical.  I think you've been in this business long enough to know the shenanagans that some owners try to pull...lol.  

I did think they would be subject to a combined 415 limit though.

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^Close for 415 aggregation the "at least 80%" in CG gets replaced with "more than 50%". Since they each have exactly 50%, neither has "more than 50%. It's in the 415 code but I forget which exactly. I think it's 415(h) but I might be off.

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Ahh, thanks Lou! 

Oh wise Cynic...I just got the email that the LLC is "dentistry".  You were right, they HAVE to be an ASG.  All bets are off then, right?  (No reason to have separate plans, since they have to cover.)

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