SEP IRA In SAme Year as 401k

[austin3515]

Owner has 5 years of service and the only eligible employees have just 2.  Owner sponsors a Safe Harbor 401k providing the top-heavy minimum 3% as a SHNEC.  Can he maximize his 401k in the 401k plan for 2017, and contribute the max to his SEP account for 2017 but not give any additional contributions to the employees (because they are not SEP Eligible) (i.e., in lieu of bumping them up to the gateway minimum).

My research tells me yes indeed this works, but please let me know your thoughts!

[Belgarath]

I assume it is a prototype SEP, and not the IRS model SEP? If so, then yes, I agree. Interesting fact pattern. (Now, when you say they only have two years of service, I'm assuming only two calendar years with any employment, and not maybe another calendar year or two where they worked enough to count toward SEP eligibility?)

[austin3515]

All hired in 2016.  So should work for 2017 and 2018.  By 2019 they will be eligible for the SEP.  May not be worth it to save the 2%, but at least it's an option...

[Belgarath]

Will they pass testing if owner maxes out, and they only receive gateway?

[austin3515]

yes

[Belgarath]

Nice! (For the employer)

[Flyboyjohn]

Make sure you check your SEP document to confirm it can coexist with a 401(k) in the same year (IRS SEP form prohibits this)

[austin3515]

Thank you for mentioning this, I was aware of this issue.