CPA with a SEP and SIMPLE Plan

[Guest Don J. Smith]

CPA has a Corp with 7 Employees and has a SIMPLE IRA Plan that he fully funds for himself. He is a Licensed Stock Broker (sole proprietor) and has a SEP with him as the only employee, which he fully funds. Both of these plans are funded to the max as if the other plan doesn't exist. Is this OK?

[Dave Baker]

He's the sole shareholder of the CPA practice?

[Guest Don J. Smith]

Yes, he is the 100% stockholder of CPA practice. That Corp. has 7 EE's.

[Dave Baker]

One trouble with this situation is the failure of the sole proprietor's SEP arrangement to provide contributions (i.e., to cover) the employees of the corporation. A SEP arrangement is simple but clumsy in this regard; it has to cover all of the age-and-service-eligible employees of the "employer," applying the common control rules of Code section 414©. A corporation wholly owned by a sole proprietorship would be a "brother-sister group of trades or businesses under common control." (See Treas. Reg. section 1.414©-2©.) So the SEP's failure to provide contributions for the corporation's employees means the contributions into the IRA have not been made under a simplified employee pension arrangement after all, and would be treated like any other excess contributions to an IRA (to the extent they exceed $2,000 per year).

[Guest Penny]

An employer maintaining a SIMPLE IRA plan may not maintain other qualified retirement plans in which employees currently accrue benefits. Under IRC Sec. 408(p)(2)(D), qualified retirement plan, for this purpose includes a SEP plan (IRC Sec. 408(k)). Control Group Rules would apply.

[Gary Lesser]

The SIMPE IRA plan would seem to be invalidated. See other responses in this forum.