415 Self Employed

[Guest mcw]

I have a client that is a sole proprietor and a member of an LLC. He has a SEP for his sole proprietorship and the LLC has a SEP. Assuming he has enough income from each business and the businesses are not affiliated service groups or controlled groups, can he get $42,000 in each of the SEPs?

Thanks

[saabraa]

Yes, he can get $44,000 from each of the SEPs.

[Archimage]

If he has enough earned income to allow for the max.

[AndyH]

Careful. The definition of control is different for 415 purposes. The "at least 80%" becomes "more than 50%" for parent-child controlled group determination for 415 purposes.

[Belgarath]

A picky detail, but I'm pretty sure Andy meant "parent-subsidiary" rather than "parent-child."

[AndyH]

Actually the terminology I used, right, wrong, or otherwise comes from an outline done by Derrin Watson. But I think B is right.

[Guest mcw]

Thanks. We are under the 50%. We may have an affiliated service group issue, but I am trying to resolve one issue at a time. Does anyone have a cite or authority for the ability to get the max in both?

[saabraa]

Section 415(A)(2)© says that the basic 415 limits apply to 408(k) (SEPs). I don't know of anything that directly says a SEP is a DC plan (there are a couple of implied references), but it's unlikely anyone will try to call it a DB plan.

[Guest mcw]

Thanks for the cite. However, I was referring to a cite that you can have more than $44,000 limit for self employment income. I know the 415 limits are per employer and that the businesses (i.e. the sole proprietorship and the LLC) are considered different employers. However, my concern is that the LLC contribution, which has to be passed on to my client, will be considered made by my client and not the business. Both deductions are going on the front of the 1040. If that is the case, my client could have self employment income and one $44,000 cap.

[saabraa]

I can't readily find a cite for that. I'm thinking it's one of those times where there's nothing against it; therefore you can do it. Is there some particular reason you're thinking there might be a different rule for the self employed?

I don't necessarily see a problem with the 1040 having a deduction that's $88,000. DB plans might often yield a 1040 deduction that big. Worst case scenario would be the IRS questioning it, and the 1040 filer would have to correspond back to them to explain.