Should I adopt my former employer profit sharing plan or switch to a SEP-IRA

[deezy743]

I will be changing jobs at the beginning of the year. My former employer has given me the option to adopt and take over my current 401k profit sharing plan. I also have an option of setting up my own SEP-IRA with vanguard or schwab. There is also an option a colleague does as well. He allows Northwestern mutual to manage his SEP IRA. I not much of a do it yourself type of person and wouldn't mind someone managing my account for me.

[spiritrider]

You need to provide some substantial background clarification

• Only an employer can adopt and maintain an employer retirement plan.
• Are you self-employed, otherwise an employer or are going to a new employer.
• The only way a 401k plan can transfer from one employer to another is if the employer is merged or acquired
• Here again only an employer can adopt a SEP IRA plan. Why only Vanguard or Schwab?
• Northwestern would probably be near the top of my list of the worst places to have a SEP IRA account. Add to the list Edward Jones or Edward James (something about Edward J. financial services companies) or any other full service brokerage firms. They are all good way for a comfortable retirement for the advisors and firms.
• If you want someone to help you manage your investments, hire a fee only financial advisor. There are many who advertise on WCI who have been vetted.

[deezy743]

I will be an independent contractor starting in January. I was told by my current employer I could adopt the policy. I can chose any firm to start the SEP-IRA just names vanguard and Schwab because I currently have accounts with them.

[spiritrider]

There is no way for an independent contractor to be a participant in any other employer's 401k plan based on their self-employed earned income (net earnings from self-employment) or takeover such a plan. If the previous employer is telling you that, they would be in massive non-compliance risking disqualification of the plan.

[litovskyassetmanagement]

There is no way for an independent contractor to be a participant in any other employer's 401k plan based on their self-employed earned income (net earnings from self-employment) or takeover such a plan. If the previous employer is telling you that, they would be in massive non-compliance risking disqualification of the plan.

There is an option to include 1099 contractors in a 401k plan document, but it is almost always set to 'no'. In order for them to offer this plan to a 1099 contractor, they would first have to amend the document to make it happen. I'd be surprised if their document already allows 1099 contractors into the plan. However, in this case, what they would do is have the 1099 contractor set up their own entity, and then have that entity adopt the main practice plan. This makes it into a 'controlled group' set up. They essentially become a participant in the plan (an HCE). They are also included in any testing, etc.

SEP IRAs are not exactly the best types of plans to set up, solo or not. I would prefer a solo 401k instead of a SEP IRA. If former employer has a SEP, there is no reason for you to adopt theirs, it is easy enough to set up your own and skip on the 'management'. OP probably meant an account with Vanguard or Schwab (SDBA, not SEP IRA).

Unless they are going to give OP 'free' benefits that they don't pay for, I don't see much of a benefit for the OP. I'd say setting your own individual 401k plan would be always better than joining another plan. Usually HCEs are excluded from SH, but they may get a top heavy 3% contribution, so this may be a reason to join another plan. Also, if the other plan does not do any PS, that would be another reason to skip it in favor of your own 401k (as not all plans can do PS due to high cost). So this is a complex question, and there is not enough data here to make a decision.

[spiritrider]

Kon, the OP has not clarified that they are going to be an independent contractor for that previous employer to even make your premise possible. That is the basis of my post.

I will be changing jobs at the beginning of the year.

I will be an independent contractor starting in January.

Even if they are changing from W-2 employee to independent contractor at the same company. It is very difficult to legitimately be classified as an independent contractor. A company should never contemplate such a change without a positive IRS ruling on a Form SS-8 Determination of Worker Status.

[litovskyassetmanagement]

Kon, the OP has not clarified that they are going to be an independent contractor for that previous employer to even make your premise possible. That is the basis of my post.




Even if they are changing from W-2 employee to independent contractor at the same company. It is very difficult to legitimately be classified as an independent contractor. A company should never contemplate such a change without a positive IRS ruling on a Form SS-8 Determination of Worker Status.

You are correct, I should have said 'Multi Employer Plan' instead of adopting employer. This is possible to do now. But it is a burden and the extra cost of doing so is high. So I doubt we know all of the information here. Very little of this makes sense.