401(k) and SEP

[R. Butler]

Employer has a SEP; wants to estalish a Safe Harbor 401(k). It is my understanding that this is permissable as long as the SEP doesn't use the 5305 model agreement. The contributions to the SEP would reduce the deductible amount to the 401(k).

Here is my situation: Owner makes 170,000 and is the only person eligible under the SEP. We can do the SEP contrib. at 15% and get him 25,500. There are two other employees making 35,000 each. Neither will defer, but will receive 1,050 for the 3% nonelective. It seems to me the owner can also get a 5,100 nonelective contribution and then defer 3,300. This keeps the total company contribution at the 36,000 limit (240,000*.15). I just want to make sure that the owner can receive 15% under the SEP and still receive an additional contribution from the 401(k).

Thanks in advance for any guidance.

[wmyer]

Some clarification...is the owner sole-prop or corp? this is for 2001, yes? and does the owner make $170,000 gross income or more than $170,000 gross income? E.g., if 2001 and corporation and he is only making 170,000, then the 15% limit is not 240,000*15%, but rather (240,000-salary deferrals)*15%.

[R. Butler]

Business entity is an s-corp. The owner makes well over 170,000. I've done some further research and have pretty much come to the conclusion that we can do this for 2001 as long as we get the safe harbor plan set up, including notices by 10/1.