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solo 401k and employees
Old 04-04-2008, 04:29 PM   #1
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solo 401k and employees

I'm getting conflicting advice from my CPA and a tax advisor who is trying to get my business. Anyone know where to find the answer to this?


I was the sole proprietor of a healthcare practice which I sold 6-1-07. I had one full-time employee of greater than 3 years duration and 2 part-time employees.

I had income from work as an independent contractor from 6-1-07 till the end of the year of $11k, which my CPA said I could put all of into a solo 401K.

Now a tax advisor is telling me that I need to contribute to a retirement plan for each of my 3 ex-employees based on my contribution to a solo 401K because they are considered to be my employees for the entire year! ? He said if I contribute to a solo 401k plan in the same year in which I had employees as a sole proprietor than - EVEN IF they were not my employees at the time I earned that income - they are considered part of my retirement plan. Does that make any sense?

I was also planning to make a contribution to a SEP. In previous years I made a matching contribution to my one long-term full-time employee's SEP. I understand that is not required if she worked less than 1,000 hours for me durnig the year. Is that accurate? I still plan to make a contribution to her SEP but it depends on what my requirement are regarding the 401K.
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Old 04-04-2008, 08:17 PM   #2
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I personally have no idea, but if you call Fidelity they will undoubtedly be able to give you a straight answer. Make sure you speak to one of their retirement servces people.
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Old 04-04-2008, 09:59 PM   #3
Confused about dryer sheets
 
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glad I'm not the only one

Quote:
Originally Posted by brewer12345 View Post
I personally have no idea, but if you call Fidelity they will undoubtedly be able to give you a straight answer. Make sure you speak to one of their retirement servces people.
Thanks. Well, at least I know it's not something simple I over-looked. Fidelity retirement is closed for the night but open on Saturday, that's promising.
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Old 04-04-2008, 10:16 PM   #4
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I also have no definitive answer. But, it sounds like these are two separate businesses. My >>guess<< would be that you could put the dough from your consulting biz into your solo401K, and that you'd have to follow the regular rules for businesses with employees for your other business.

Calling Fidelity is a good approach. Or, just hire the CPA (who gave you the most "generous" answer) if he shows you the rationale for his approach. If he's right, he deserves your business over the other guy (and you'll get the benefit of having used him). If you contribute to the solo401k and the IRS looks askance at it, you'll at least have the CPA sitting beside you ready to argue with them using the same rationale he gave to yo,u and at most you'll have to pay the tax and a small penalty, right?
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Old 04-05-2008, 10:19 AM   #5
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Quote:
Originally Posted by mjpa View Post
I'm getting conflicting advice from my CPA and a tax advisor who is trying to get my business. Anyone know where to find the answer to this?


I was the sole proprietor of a healthcare practice which I sold 6-1-07. I had one full-time employee of greater than 3 years duration and 2 part-time employees.

I had income from work as an independent contractor from 6-1-07 till the end of the year of $11k, which my CPA said I could put all of into a solo 401K.

Now a tax advisor is telling me that I need to contribute to a retirement plan for each of my 3 ex-employees based on my contribution to a solo 401K because they are considered to be my employees for the entire year! ? He said if I contribute to a solo 401k plan in the same year in which I had employees as a sole proprietor than - EVEN IF they were not my employees at the time I earned that income - they are considered part of my retirement plan. Does that make any sense?

I was also planning to make a contribution to a SEP. In previous years I made a matching contribution to my one long-term full-time employee's SEP. I understand that is not required if she worked less than 1,000 hours for me durnig the year. Is that accurate? I still plan to make a contribution to her SEP but it depends on what my requirement are regarding the 401K.
Hairy stuff......... I am not a tax expert, but I would think the CPA is as knowledgeable as the tax advisor. It seems to me they are two different businesses, and therefore the retirement plan for one does not apply to the other.

Get the info from the tax advisor that says that is the decorum, and give that to the CPA. Let them fight it out, and give you the answer........
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Old 04-05-2008, 09:26 PM   #6
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As the tax adviser what statute, regulation or ruling requires this.
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