Tagged: SEP IRAs
- October 1, 2018 at 2:10 am #255687
We have a holding corp with two subsidiaries, one run by me and the other by my wife. Both subs have employees including me and my wife, respectively. The holding corp has no employees. If she and I were to become employees of the holding corp (rather the sub that we each run) would we be able to have SEPs in the holding corp without offering to employees of the subs?October 1, 2018 at 2:15 am #255839
Dock David TreeceModerator
Thanks for your question. Unfortunately, this is a relatively common maneuver that a lot of business owners try to use to avoid funding contributions for employees, so it’s become a pretty big red flag for the IRS. To answer your question directly, no – based on what you’ve described you could probably not have SEP for your holding company without offering the SEP to employees of your subsidiaries. In the situation you’ve described, with you and your wife owning the subsidiary companies, the IRS likely treats these as disregarded entities. Essentially, you have one company that has compartmentalized liability for different operations. However, if you set up a SEP for one of your companies, you would probably need to offer your SEP to employees of any companies under common control.
Hope this helps. If you want more information on SEPs and some common alternative types of retirement plans used instead of SEPs, be sure to check out our ultimate guide here: https://fitsmallbusiness.com/sep-ira-rules/