thepensionmaven Posted March 12, 2020 Posted March 12, 2020 Accountant's question to us - he has a Dr. client who will work for 1/2 year in 2020 at hospital participated in 401K. He also has a PC where he is self employed and has a SEP (he contributes 25% of salary). Last 1/2 of 2020 he will change employers and does not want to participate in their 401K plan but wants to do a DB plan in his PC. Can he form DB plan in same year he terminates SEP? Can he form DB in 2021 while working for a company wherein he is eligible to participate in 401K but does not? I believe if he contributes to a hospital plan he must subtract that amount from the maximum amount he can contribute to the SEP. Second half of the question, he's still a participant in the 401K, whether he contributes or not (most confuse "does not want to participate" vs "$0 contribution). As far as a DB in his PC, my gut tells me "no", but i'm not sure why.
Lou S. Posted March 12, 2020 Posted March 12, 2020 Assuming his PC is not a controlled or affiliated service group with the other entities he can establish and fund a DB plan based on his unrelated self-employment income. If he funds the SEP for 2020 he could cause deduction issues with a DB plan and or qualification issues for the SEP if he's using the standard IRS Form 5305-SEP which doesn't allow you to maintain another qualified plan in the same year. A prototype or individually designed SEP might have different results but you might still run in to the same deduction issues if he puts more than 6% of pay into the SEP. If he doesn't fund the SEP at all, the DB plan should be fine for 2020. In 2021 is his only income as an employee from the company with the 401(k) Plan? That is he no longer has income from his unrelated PC employer? If that's the case then a qualified plan of any kind outside his employer's 401k plan is a probable non-starter. If the hospital plan is a 403(b) plan I'm not totally sure on the 415 limit implications.
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