Questions re: moving from SEP to solo 401(k)

[UM1234]

Hi, any comments on the following would be greatly appreciated. Thank you!

Client is an ER physician working as an independent contractor. He has no employees. He is an LLC taxed as a sole proprietorship; files Schedule C with his tax return.

Background

On 3/28/15, client signed IRS Form 5305-SEP and other paperwork required by TD Ameritrade (TDA) to open a SEP at TDA. TDA doesn't offer an individually designed SEP, just the 5305-SEP.

Before 4/15/15, client will be contributing $6,620 to the SEP and deducting this amount on his 2014 tax return. This is the max contribution calculated by client's CPA.

For contributions based on his 2015 self-employment income, client isn't sure yet whether he will stay with the SEP, or move to a solo 401(k). Part of it depends on how much he ends up making in 2015. That is, will a solo 401(k) end up letting him contribute more than a SEP, or will his income be high enough that both options allow him to max at $53K? He doesn't plan to make any contributions for 2015 until March/April 2016, when his tax return is done and his income is known.

I'm trying to make sure I understand the deadlines and other issues if he decides to move to solo K.

Issue 1

From my research so far, I believe the rules for establishing and contributing to the solo K would be as follows. Do you agree, or am I off base on any of this?

• Deadline to establish solo K would be 12/31/15.
  
• He would have until at least 4/15/16 (later?) to deposit his employee deferrals.
  
• He would have until 10/15/16 to deposit his employer contributions.
  

Issue 2

I see that one cannot maintain a SEP established under IRS Form 5305-SEP at the same time as a qualified plan. So, if he decides to move to a solo K, he could get rid of the SEP by rolling it into the solo K, assuming solo K plan document accepts rollovers from SEP. But, does the fact that his SEP will have had money in it during 2015 mean that he "maintained" it during 2015, even if he doesn't make any contributions to it for tax year 2015?

[Flyboyjohn]

Issue 1

Yes, 12/31/2015 is the deadline to sign an Adoption Agreement for a new 401k plan effective in 2015

There is debate among practitioners on the deadline for funding elective deferrals for a self employed person, good practice would dictate at least signing a deferral election form by 12/31/15

Yes, the deadline for funding 2015 "employer" contributions that are deducted on the 2015 tax return can be extended to as late as 10/15/2016

Issue 2

The facts that the 5305-SEP was signed in 2015 and the 2014 contribution was made in 2015 does not result in the SEP being "maintained" in 2015 for purposes of the prohibition you're concerned with. Furthermore, you don't have to move the 2014 SEP contribution out of the IRA, it can remain there even during the existence of the 401k. Just don't make any SEP contributions "for" 2015 during 2015.

[Mike Preston]

... or during 2016.

[UM1234]

I never got the chance to come back and say thank you very much to both of you for the helpful replies. So thank you