dmertz
Level 15

Retirement tax questions

It's also to prohibit being able to circumvent plan contribution limits by splitting a business.  Without the controlled-group limitation, one with sufficient total compensation, say $600,000, someone could split the business in a way that resulted in compensation of $300,000 from each business and contribute a maximum employer contribution of $56,000 to each plan instead of being subject to a single $56,000 § 415(c) limit (the limit for 2019).  See "Section 415 Limits- Example" in the reference.  This is what TurboTax does on the Keogh, SEP and SIMPLE Contribution Worksheet by doing a single calculation based on the combined profit of the two businesses.  With regard to the controlled-group limitation, it doesn't matter that one businesses is a law business and the other is a real-estate business.

 

Also note that the most commonly used SEP agreement is Form 5305-SEP which can only be used if the employer (in this case the controlled group) maintains no other type of plan.  Even if this limitation is not present, say, because a different SEP agreement is used, the combined employer contributions between the SEP plan and the 401(k) plan is limited to $56,000 (for 2019) combined, so the separate SEP plan serves no real purpose (except, perhaps, to provide diversification).

 

 

View solution in original post