I have money purchase plan,SEP IRA Can I open a 401K?

[caryn22359]

I have a money purchase plan which I must contribute 8% each year. I also have a SEP for each employee. This year I am going to have a bigger profit than in prior year. I am thinking of establishing a 401K. Is this allowed. Thank you.

[401king]

http://benefitslink.com/boards/index.php?/topic/43177-sep-and-401k-in-same-year/

[caryn22359]

I am a little confused by the post. If I have a salary of 100,000 for 1 employee. Ex. I can contribute % to the money purchase plan, 8000 make up the balance with the sep 17% to the sep 17,000 and then the employee can defer 17,000 in wages to a 401K? thank-upi

[Bird]

I don't intend to be insulting, but it sounds like you have just enough info to be dangerous. Yes, it can be done, but...

Combining a MP, SEP and 401(k) just doesn't make much sense to those of us in the business. You could get to exactly the same place in a 401(k), which allows for employer contributions up to 25% of pay and employee contributions up to the dollar limit ($17,500/$23,000 if over age 50). Having a bigger profit isn't really a driving force for adding a 401(k) since that doesn't add more in employer contributions. You know (?) that there is testing on 401(k) contributions...and you're giving everyone the same % in the MP and in the SEP?...and there are probably different eligibility requirements in the MP and in the SEP, so even though I just said "everyone" there might be some in the MP who are not in the SEP...?

[david rigby]

This year I am going to have a bigger profit than in prior year.

Sometimes the best response is: how much bigger? will you have a similar larger profit for multiple years in the future?

[caryn22359]

Not sure. This is an old plan. I have insurance in the money purchase plan , so I a little afraid to close the plan and just have 1 profit sharing plan. there is 1 owner and 2 employees. I don't think a defined benefit would be advisable because there are 2 other employees and they are 65 and 60. That is why I was asking about a 401K,. Thanks. Appreciate all the help and posts.

[ESOP Guy]

Caryn22359:

Might want to seek the help of a company that specializes in helping you run your plans. It might be possible to terminated the Money Purchase Plan and transfer all the assets (including the insurance) into a PS plan. Since a profit sharing plan can also be a 401(k) plan they could help you add the 401(k) provision to that plan. This would minimize the number of plans, Form 5500s and so forth.

What I just described however has alot of techinical stuff associated with it that needs to be done right and I am skipping alot to keep it short.

I could be wrong but it sounds like if you spent some time with a firm that specializes in helping companies run qualified plans they could help you meet your objectives better then you currently are do so. It risk of getting some of the investment guys who read this stuff riled up if you have been getting your advise mostly from a brokerage house or investment advisor it might be worth the money to get the specialized advice.