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Can Contributions Continue To SIMPLE IRA If Spouse Sponsors 401(k)?


mming

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Husband and wife each own a business.  The businesses are unrelated and are not members of a controlled group or ASG.  The wife has a SIMPLE IRA.  The husband wants to sponsor a 401(k) plan and exclude the wife.  Is there anything preventing the wife from contributing to her SIMPLE IRA after the husband's 401(k) plan is established? 

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30 minutes ago, mming said:

The husband wants to sponsor a 401(k) plan and exclude the wife.

This sentence doesn't make sense to me unless the wife is an employee of the husband's business. Is she?

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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If she was an employee of the husband's business wouldn't that be a controlled group by stock attribution because as a spousal employee should be be deemed to own 100% of husband business as well as 100% of her other business? But he said no CG so I assume she is not employee.

Assuming the wife has no direct ownership of husband business, is not an employee (and same goes other way) and there are no GC or ASG issues I see no reason why wife can't maintain SIMPLE-IRA for her business while husband has 401(k) for his.

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2 hours ago, Mr Bagwell said:

Make sure there is no minor children.

Mr. Bagwell makes a good point, and raises a broader point: When dealing with potential controlled/affiliated/management group scenarios in closely held businesses, make sure you have all the facts and ask all the relevant questions as it relates to family attribution.  For example, while it would appear based on the facts you provided in this post and previous post that a controlled group does not exist, as Mr. Bagwell points out, if the husband and wife have a minor child (under age 21), all bets are off: 

Each spouse's 100% ownership in their respective companies is attributed to the minor child. The minor child is deemed to hold a 100% interest in both companies making this a classic brother-sister controlled group of corporations. This means that the controlled group cannot offer both the 401(k) and the SIMPLE IRA in the same year.  

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Thank you all for your input.  C. B., neither spouse is employed by the other.  My statement to exclude the wife was meant to imply that they are not interested in establishing a multiple employer plan, as may be considered by some couples in such a situation.  

I will ask them about minor children.  Hopefully it's not an issue since the couple is in their 60s, but you never know.

 

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I still don't understand the "why" of having one spouse have a 401(k) and the other have a SIMPLE IRA. Even if they actually aren't a controlled group (which I'm still skeptical about), it's easy enough to make them a CG and it wouldn't be a multiple employer plan. It would just be a single employer plan with a husband and wife.

William C. Presson, ERPA, QPA, QKA
bill.presson@gmail.com
C 205.994.4070

 

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We need more information. Does either business have non-spouse employees.

  • A SIMPLE IRA is generally not the best solution for a small business with no non-spouse eligible employees. A one-participant 401k or SEP IRA depending on compensation would allow for far greater contributions.
  • A SIMPLE IRA may be the right solution for a small business with a limited number of non-spouse eligible employees.
  • If the husband has no non-spouse eligible employees and the wife does, it is probably better that they have separate businesses and employer retirement plans (assuming No CG/ASF, E.g. no minor children).
  • If they both have non-spouse eligible employees, it might be better if they use a single business entity (S-Corp, Partnership and if eligible QJV) and a single Safe Harbor 401k. It would be a single business/plan with a single base administrative fee and maybe only a small incremental fee per employee. Although, many TPA business models have a base fee that includes up to a certain number of participants and cost no more.
  • Of course, there may be tax reasons to have one S-Corp and one sole proprietorship or it might be a good idea to maintain separate businesses for marital harmony.
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Although a CG situation does not currently exist, the wife is actively seeking to acquire a significant ownership stake in another business within the next 12 months.  As the acquired business would employ NHCEs, a CG issue would arise if she were participating in the husband's 401(k) plan.  Both H & W have made it clear that they have no interest in covering the NHCEs in the new plan, even if it were a SH plan, or if a DB/DC combo was set up.  Very likely marital harmony plays a part in this, spiritrider, ha ha.

However, we were just told that it's the family trust, and not the husband himself,  that owns the husband's company.  Wouldn't this cause a CG to exist at this time since both the H & W are the beneficiaries of the family trust?

 

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