Retirement Plan

[Bird Legs]

Client, Sole Proprietor, 2 employees, wife & son.
Client set up SEP IRA for himself and 2 employees and contributes the maximum
amount to the plan.
Clients SE earnings are around $400,000.
Client is over 65 and drawing Soc. Sec.
Can he set up a 412(i) retirement plan in addition to the SEP? Client is
looking for a way to reduce his tax liability. He does have a group medical
ins. plan set up.
Thanks for any suggestions you may have.

[sea-tax]

Client, Sole Proprietor, 2 employees, wife & son.
Client set up SEP IRA for himself and 2 employees and contributes the maximum
amount to the plan.
Clients SE earnings are around $400,000.
Client is over 65 and drawing Soc. Sec.
Can he set up a 412(i) retirement plan in addition to the SEP? Client is
looking for a way to reduce his tax liability. He does have a group medical
ins. plan set up.
Thanks for any suggestions you may have.

Bird , I do not think that he can have both, but I may be mistaken. I have never had a client want to maintain both so have never looked into it. I have setup a couple of 412i plans and would strongly recommend that you talk to a qualified plan administrator. Also if you are not licensed to sell or conduct investment activities then I would have you talk to a licensed individual.

Also If I may ask , are you thinking of incorporating this client or have you talked about it?

[Bird Legs]

Seatax

Thank you for your response. Yes, we have talked about incorporating, however,
This person does a lot of his business in Mexico. Foreign Income.
Also, this individual cannot keep a complete set of books for me to work with.
In addition, he will be retiring in just a few years. He is over 65 and his wife has
cancer, which is currently in remission.
No, I am not a licensed broker, financial advisor or anything like that. I would have
referred him to someone, though. He does have someone he works with.
Just trying to think of a way to reduce his taxes.
He could increase the sons pay.

[OldJack]

Yes it might be possible, but would not item 412(i)(2) retirement age for this client keep you from doing it? Also, you would still be limited to the 25%/$41,000± overall max contribution for employees and you can do that with just the SEP.

When not to use Form 5305-SEP.
cannot use Form 5305-SEP if any of the following apply.

1. You currently maintain any other qualified retirement plan. This does not prevent you from maintaining another SEP.
.........

More than one plan.

If you contribute to a defined contribution plan (defined in chapter 4), annual additions to an account are limited to the lesser of $41,000 or 100% of the participant’s compensation. When you figure this limit, you must add your contributions to all defined contribution plans. Because a SEP is considered a defined contribution plan for this limit, your contributions to a SEP must be added to your contributions to other defined contribution plans.

Certain insurance contract plans
A plan is described in this subsection if -
(1) the plan is funded exclusively by the purchase of
individual insurance contracts.
(2) such contracts provide for level annual premium payments to
be paid extending not later than the retirement age for each
individual participating in the plan, and commencing with the
date the individual became a participant in the plan (or, in the
case of an increase in benefits, commencing at the time such
increase becomes effective),
(3) benefits provided by the plan are equal to the benefits
provided under each contract at normal retirement age under the
plan and are guaranteed by an insurance carrier (licensed under
the laws of a State to do business with the plan) to the extent
premiums have been paid,
(4) premiums payable for the plan year, and all prior plan
years, under such contracts have been paid before lapse or there
is reinstatement of the policy,
(5) no rights under such contracts have been subject to a
security interest at any time during the plan year, and
(6) no policy loans are outstanding at any time during the plan
year.

A plan funded exclusively by the purchase of group insurance
contracts which is determined under regulations prescribed by the
Secretary to have the same characteristics as contracts described
in the preceding sentence shall be treated as a plan described in
this subsection.