Can I max SEP-IRA & i401k?

[neopsych12]

My father has as a private practice (made change from sole prop to S corp this year). His wages will be 212k and he would like to contribute 53k to SEP-IRA.

Additionally, he gets 1099 income from consulting (~220k). Can he open an individual 401k through this sole prop identity and contribute 18k (individual) + 35k (employer) + 6k (catchup contributions) = 59k?

Thanks in advance!

[jfoxcpacfp]

Unfortunately, no. As the sole owner of both businesses, the rules of attribution treat them as the same business. However, he can contribute the max ($59k) by using profits from the SP and the salary from the S-corp. Neither business alone has enough income for him to contribute the max.

[neopsych12]

Thanks for the reply.

In 2017, I will be added as an owner for the private practice as I will be joining the practice when I graduate from fellowship. Will this allow him to do both?

[litovskyassetmanagement]

neopsych12 wrote:

Thanks for the reply.

In 2017, I will be added as an owner for the private practice as I will be joining the practice when I graduate from fellowship. Will this allow him to do both?

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Does his private practice have any employees at all? You can use a solo 401k plan so that both of you are able to maximize the contribution, but you have to be partners.  Another alternative is to have the income from the 1099 job go to his private practice (which is something you should ask your CPA about). Having a higher income might allow him to also use a solo defined benefit plan on top of the 401k plan.  This would require a custom plan document for the solo 401k plan though, but then he could easily quadruple the contribution he makes into the solo 401k plan (and he can contribute as much as $150k+ on top of the solo 401k, depending on his age and his salary).

Here's some more information on the types of plans that you can use if you do not have any employees (just partners and/or spouse employees):

http://quantiamd.com/player/ygvmhdmbm?cid=1467

[neopsych12]

Yes, the private practice has 3-4 FT employees so my understanding is that the i401k is not allowed. After expenses the practice makes 400k and he will pay himself a salary of 212k.

https://www.whitecoatinvestor.com/multiple-401k-rules/

Can he just do what the person is example four at the link above did? SIMPLE IRA for practice and employees and i401k +/- DB plan for consulting work?

[jfoxcpacfp]

neopsych12 wrote:

Thanks for the reply.

In 2017, I will be added as an owner for the private practice as I will be joining the practice when I graduate from fellowship. Will this allow him to do both?

Click to expand...

I'm sorry but the rules of attribution "attribute" your stock ownership as his due to the family relationship. Therefore, he will still be unable to max out plans in both businesses.

[litovskyassetmanagement]

jfoxcpacfp wrote:

neopsych12 wrote:

Thanks for the reply.

In 2017, I will be added as an owner for the private practice as I will be joining the practice when I graduate from fellowship. Will this allow him to do both?

Click to expand…

I’m sorry but the rules of attribution “attribute” your stock ownership as his due to the family relationship. Therefore, he will still be unable to max out plans in both businesses.

Click to expand...

Just one plan (or a combo plan) for one business - this is a controlled group situation even with the 50% ownership.  Turns out that the original practice has employees, so this is a bit more complex than it seemed initially.