Single member, 2 businesses - SEP IRA... 401(k)

[Basically]

Financial advisor asked if this client he has can sponsor a SEP IRA with one of his businesses and a 401(k) with the other?  There are no employees.  

[Belgarath]

I'm missing the point of why this would be desired. If one person owns 100% of both businesses, it is a controlled group. If no employees, why would he want the two plans? One 415 limit, so he can't "double up" on contributions/deduction maximums - he can max out, up to the deductible or 415 limit in the 401(k) plan, including catch-ups if eligible.

But if there's some other reason I'm missing, yes, if he uses a non-model SEP, it might be possible, depending on the language in both documents.

[Paul I]

I have been asked this question when, and have clients where, the client already has a plan with a different financial advisor, and the client is willing to consider using the services of a second financial advisor.  My experience is having two plans with different financial advisors leads to extra overall costs to the client and compliance problems when the client gets conflicting advice from each advisor.

[Lou S.]

He would have to use a prototype SEP and can not use IRS FORM 5305-SEP to maintain the SEP. But as Belgarath points out, he still has only one 415 limit.

[truphao]

Lou, has anything in Secure 2.0 changed that "nuisance" with 5305 by any chance? (running too thin to dig in myself:)

[Basically]

So I was confused, brain failure.  The SEP-IRA only means that the money is invested in IRAs.  It's not an IRA,  It's a retirement plan which must comply with the 415 limits.  I do understand how multiple plans have 1 limit.   

Sorry for the lack of consciousness.

[Lou S.]

On 8/11/2023 at 2:08 PM, truphao said:

Lou, has anything in Secure 2.0 changed that "nuisance" with 5305 by any chance? (running too thin to dig in myself:)

I have not seen anything in SECURE or SECURE 2.0 that changes Form 5305-SEP to allow for other Plans if that's what you are asking.

[truphao]

thank you Lou, it is my understanding as well but I did not spend enough time digging in.

[Paul I]

There are some financial firms that sponsor a prototype SEP IRA that do not prohibit having other plan like the prohibition when adopting a Form 5305-SEP plan.

Note that the IRS in 2022 temporarily suspended its program for issuing opinion letters for these prototype SEP IRA, but allow firms that sponsor plans with opinion letters to continue to rely on their letters to create new plans.