SEP-IRA, 401(k) and co-employment

[Guest WESKI4]

Very small management company with generous 100% employer funded SEP-IRA signed a co-employment contract with firm (to do the health, UC, WC and payroll) which offers 401(k) plan. Can they do both? The SEP-IRA is all er-funded, the 401(k) would be all ee-funded. Limited to combined 25% or 415 limits? Or none of the above?

[Gary Lesser]

Assuming the individuals are employed by both entities, they can participate fully in both plans, but only to the extent of their compensation from each employer.

If employers related, controlled, or affiliated, then the employers are treated as one employer and the SEP contributions are treated as contributions to a defined contribution profit-sharing plan.

If an individaul ownes more than 50% of both businesses, then the 415 limits (100%/$40,000 for 2002) applies (even if not a controlled group).