Defined Contribution Plans

[JDW]

Can a sole proprietor with two separate schedule c businesses (no employees except for the owner) have separate defined contribution plans for each business, as a controlled group. For example, Simple IRA for one and a SEP for the other.

[New York Enrolled Agent]

IRS Notice 98-4

Q. B-5: Do the employer aggregation and leased employee rules apply for purposes of the SIMPLE IRA Plan rules under section 408(p)?

A. B-5: For purposes of applying the SIMPLE IRA Plan rules under section 408(p), certain related employers (trades or businesses under common control) are treated as a single employer. These related employers include controlled groups of corporations under section 414(b), partnerships or sole proprietorships under common control under section 414(c), and affiliated service groups under section 414(m). In addition, leased employees described in section 414(n) are treated as employed by the employer.

[JDW]

Thank you for your reply and information. Given the contolled group rules, it seems it would make sense in 2018 to set up a SEP IRA, and not make the Simple IRA contributions. This would allow for a larger SEP contribution on the combined income of the two Schedule C businesses. Any thoughts would be appreciated.

[ATSMAN]

If this business will not have any employees and the owners goal is to maximize the tax deduction. He may want to check out defined benefit plans, particularly a fully insured defined benefit plan. The deduction (depending on age and benefit formula) may be more than double of any dc plan!