SEP and 401(k) question

[cpc0506]

Company A was a partnership (2 partners, Employee A and Employee B in 2014) which sponsors a SEP. Midway through 2014 the partnership dissolves. Employee B has started a new company, Company B, (100% ownership) after the dissolution of Company A.

Can Company B adopt a 401(k) Plan for 2014? If so, does the contribution made under Company A's SEP have any effect on what Employee B can receive under the new 401k plan?

[Bird]

Yes, can start a plan. SEP has no effect on B's contributions in new plan, assuming B did not own 80% of the partnership and the two entities are not an affiliated service group.

[cpc0506]

What if the plan of Company A was a Simple-IRA plan? Does this change your answer? The orginal ownership of Company A was split 50-50 between Employee A and Employee B.

[Lou S.]

As long as he didn't have more than 50% interest in A you are fine for 415

415(h)50 Percent Control .—

For purposes of applying subsections (b) and © of section 414 to this section, the phrase “more than 50 percent” shall be substituted for the phrase “at least 80 percent” each place it appears in section 1563(a)(1).