Combo SEP/MPPP For Small Employer

[Guest RS Vatalaro]

I have a potential client who is a one-man consulting operation (LLC). He employs his wife, and probably won't have any other employees.

They are considering implementing a retirement plan. They are not currently interested in DB and want to be able to contribute 25%. Two arrangements are being considered: 1) Combo MPPP/PS and 2) Combo MPPP/SEP.

The advantage of method 2) is no administration is required for the SEP. I have worked w/ many MPPP/PS combo's but never MPPP/SEP combo,hence below questions.

a) Is there any law that would preclude taking a 25% LLC deduction on the LLC tax return with this arrangment?

b) The MPPP doc would be a standardized prototype. My understanding is that generally if you have another qualified plan aside from the MPPP that is not a "paired plan" with the MPPP, that the employer cannot rely on the MPPP determination letter. Since a SEP is not a qualified plan, probably no issue, just wanted to be sure. My concern is that there wouldn't be any problem w/ reliance on the MPPP det ltr if there is also a SEP being operated in tandem w/ the MPPP.

c) My understanding is that a sole participant of a qualified plan does not really afford the participant protection againist creditors, etc. (hence use of a PS doesn't help us out here). Is there any disadvantage in this regard of using a SEP over a PS when the only participants are the owner and his wife?

I appreciate any input.

[Guest Fishchick]

Your client would not be able to use the IRS model SEP 5305- SEP as it specifically limits employers who maintain a qualified plan from using it. He would have to have a prototype or individually designed SEP to use instead.