Mid-year SEP termination; afterwards open solo 401k

A business with a SEP terminates its only employee in June 2020. The business has made no 2020 SEP contributions. The business terminates the SEP as of July 31, 2020. Can the owner open a solo 401k in August 2020 and make a 2020 contribution to the solo 401k?

3 hours ago, jgold0016 said:

A business with a SEP terminates its only employee in June 2020. The business has made no 2020 SEP contributions. The business terminates the SEP as of July 31, 2020. Can the owner open a solo 401k in August 2020 and make a 2020 contribution to the solo 401k?

Yes, but discrimination testing must still be done and that employee who terminated in June may be entitled to a contribution depending on the circumstances.

In follow up to your comment, I dug into BNA to try to understand how discrimination rules could potentially result in the terminated employee who had been a SEP participant being entitled to contributions in a solo 401k opened after termination of his employment and after termination of the SEP.  Unfortunately I can’t figure it out.  Are the two plans treated as one for calendar year 2020? It’s difficult to imagine under what circumstance a contribution to the solo 401k could be required for the terminated employee.  Or would the non discrimination rules instead result in  the HCE/owner being ineligible to receive a 401k contribution until 2021? Perhaps you can suggest where I can find something relevant in the discrimination-related Regulations that would potentially apply to this situation.  Thanks!

The SEP is a red herring because it is not aggregated with anything.  So, re-ask your question with only the 401k in the picture.

Under these assumed facts (sole employee is terminated in June 2020; SEP is terminated as of July 31, solo 401k is opened in August 2020, and the owner makes a 2020 contribution to the 401k), what is the authority for saying there is no problem?  Thanks!

Do you pass 410(b)?