I have two different solo businesses- one as an attorney and one as a real estate broker. No employees. I've set up a solo 401k for the real estate business. Can I also set up a SEP IRA for the legal business? I'm using Turbotax Home and Business 2019.
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).
Please read this TurboTax answer which addresses your question.
Thanks much!! This answers my question, but I have one more. I can't find in my Turbotax Home and Business software how to enter amounts for the 2 separate retirement accounts I will be funding. The software seems to only calculate for one plan.
No, you cannot have a separate retirement plan for each business. Since you are 100% owner of each business, your two businesses are considered to be a controlled group which must be treated as a single employer for the purpose of a retirement plan. See the following IRS description of controlled and affiliated service groups: https://www.irs.gov/pub/irs-tege/epchd704.pdf
Now I'm confused. The first responder seems to say that yes, I can have 2 different plans. Yours says "no" because I own and control both businesses.
But I thought the "controlled group" rule was to prevent a business owner from setting up different businesses to avoid having to include its employees in a retirement plan- hence, that rule perhaps would not apply if neither of my 2 businesses have employees?
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).