401(k) / SEP

Just because I don't generally handle SEP.

Participant has maxed out on his 401(k) at his employer, but he also has a side business where he has a SEP.  I don't believe that he can put any EE money into the SEP, but even if he's hitting the $56k between EE/ER in the 401(k) he could also maximize the ER in the SEP right ($56k)?

Correct, as long as the side business is not considered a controlled or affiliated service group with the employer.

Assuming no employees, they might be better off contributing to a SEP IRA for the 2019 tax year*, adopting a one-participant 401k plan for the 2020 tax year, rolling over the SEP IRA and contributing to the 401k plan going forward.

*Up to and including 2019, an employer had to adopt a 401k by 12/31 of the tax year. This has been changed by the SECURE Act. Starting for the 2020 tax year, an employer now has until their tax filing deadline including extensions to adopt a 401k plan.

On 3/6/2020 at 11:45 AM, spiritrider said:

Correct, as long as the side business is not considered a controlled or affiliated service group with the employer.

Assuming no employees, they might be better off contributing to a SEP IRA for the 2019 tax year*, adopting a one-participant 401k plan for the 2020 tax year, rolling over the SEP IRA and contributing to the 401k plan going forward.

*Up to and including 2019, an employer had to adopt a 401k by 12/31 of the tax year. This has been changed by the SECURE Act. Starting for the 2020 tax year, an employer now has until their tax filing deadline including extensions to adopt a 401k plan.

Agree. But, if he is already maxing out the salary deferral in the 401(k) with his employer, no need to do a 401(k) for the side business, unless he wants to for benefits not available under the SEP, such as taking loans. The 401(k)is more expensive to maintain - record-keeping, 5500 for >$250,000.

True, but if he can max out the employer contribution. His Roth MAGI is too high for direct Roth contributions. The SEP IRA contributions would interfere with Backdoor Roths.

Although, I suppose if his employer allows IRA rollover contributions. He could make the SEP IRA contributions, roll them over to his 401k and still do Backdoor Roths.