A:

Generally, any qualified retirement plan or IRA-based plan adopted by an employer must cover all eligible employees. Failure to do so could result in plan disqualification.

For example, suppose that a partnership company wishes to incorporate an IRA for its partners and a 401(k) plan for the employees. If the partnership adopts a simplified employee pension (SEP) IRA, the common-law employees who meet eligibility requirements should be allowed to participate in the SEP too. Participation should not be limited to only the partners in the partnership. For the 401(k) plan, employees may choose whether they want to make salary-deferral contributions; therefore, the partners simply could choose not to make salary-deferral contributions. However, caution must be exercised, as limited participation could result in the plan failing non-discrimination testing.

To be sure, you may want to have a tax attorney review your particular situation.

(To read more about how to set up a retirement plan for a small company, read Plans the Small Employer Can Establish, Establishing an SEP IRA and SIMPLE IRA vs. SIMPLE 401(k) Plans.)

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS
  1. Am I losing the right to collect spousal Social Security benefits before I collect ...

    The short answer is yes, if you haven't reached age 62 by December 31, 2015. The Bipartisan Budget Act of 2015 disrupted ... Read Full Answer >>
  2. What is the maximum I can receive from my Social Security retirement benefit?

    The maximum monthly Social Security benefit payment for a person retiring in 2016 at full retirement age is $2,639. However, ... Read Full Answer >>
  3. Are target-date retirement funds good investments?

    The main benefit of target-date retirement funds is convenience. If you really don't want to bother with your retirement ... Read Full Answer >>
  4. Where else can I save for retirement after I max out my Roth IRA?

    With uncertainty about the sustainability of Social Security benefits for future retirees, a lot of responsibility for saving ... Read Full Answer >>
  5. Will quitting your job hurt your 401(k)?

    Quitting a job doesn't have to impact a 401(k) balance negatively. In fact, it may actually help in the long run. When leaving ... Read Full Answer >>
  6. How does my spousal Social Security benefit work?

    If you have never worked or paid Social Security taxes, you will not be eligible to receive Social Security retirement benefits ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    Top 3 PIMCO Funds for Retirement Diversification in 2016

    Explore analyses of the top three PIMCO funds for 2016 and learn how these funds can be used to create a diversified retirement portfolio.
  2. Retirement

    How Much Should You Have In Your 401(k) To Retire?

    Determining how much money should be in your 401(k) when you retire depends on several variables, many of which are uncertain.
  3. Retirement

    Retiring in Thailand: The Pros & Cons

    It's a lovely land, but before relocating, get the skinny on this Southeast Asian kingdom.
  4. Investing

    How To Make Sure Your Healthcare Costs Do Not Ruin Your Retirement

    The best proactive plan of action for a stable retirement is to understand medical costs, plan ahead, invest properly, and consider supplemental insurance.
  5. Retirement

    Is Retiring in France Safe Today?

    After a series of deadly terrorist incidents, some may be asking themselves this question.
  6. Investing

    3 Small Steps to Maximize Your Investing Goals

    Instead of starting the New Year with ambitious resolutions, why not taking smaller manageable steps that can have a real impact.
  7. Personal Finance

    Don't Sign That Non-Compete Without Reading This

    Non-compete contracts aren't just for high-level execs these days. How to protect yourself if your employer – or prospective employer – insists you sign one.
  8. Investing

    7 Creative Ways to Save for an Early Retirement

    Take note of these out of the box steps you can take towards securing yourself an earlier, more comfortable retirement.
  9. Products and Investments

    Cash Value vs Term Life Insurance: Which is Best?

    The debate between cash value life insurance and term insurance plus an investment plan is an ongoing one. Here's a look at both sides of the argument.
  10. Your Clients

    Tips for Making Your Nest Egg Last Longer

    If you’re trying to figure out how to make your hard-earned nest egg last, there’s one piece of advice that stands above the rest.
RELATED TERMS
  1. Share Repurchase

    A program by which a company buys back its own shares from the ...
  2. Board Of Directors - B Of D

    A group of individuals that are elected as, or elected to act ...
  3. Sequence Risk

    The risk of receiving lower or negative returns early in a period ...
  4. Skilled Nursing Facility

    A special facility or part of a hospital that provides services ...
  5. Nursing Home Placement Service

    A business that specializes in helping families and patients ...
  6. Nursing Home Resident Trust Fund

    An account in a nursing home that helps residents manage finances ...
Trading Center