Advice: 1099 contractor for 1/2 year, started LLC with employees

[ethereality]

Hello wise people of the forum,

I've done as much research as I can on retirement accounts for business, and I need your help.

My mom owned the family business until June, where I worked for her as a contractor. I made around $22,000 during that period.

Then, in June, I took over the business and opened an LLC under my name, as a sole proprietor. I'm still working out payroll, and most of my employees (just 3) work a little over part time. 25 or so hours/week. Since it's a brand new business, I don't really have a lot of funding to contribute to retirement plans for employees. Given that the SEP IRA rules say that employees have to have worked 3 of the last 5 years to be eligible and none of mine have, can I open a SEP IRA for the business, and contribute just to my own plan and fund a solo 401k for my work that I did as 1099?

I definitely want to eventually be able to offer employees a retirement package; it's just hard to budget that now as I'm just starting.

I already max out a trad IRA/roth IRA.

Am I missing anything?

[SeattleCPA]

You probably only have one business... a sole proprietorship. BTW, I understand that for last half of year, you set up an LLC... but an LLC with one member is disregarded... so you combine the "just you" part of the year and the "LLC with employees" part of the year and report all that stuff together on a Schedule C inside your 1040.

Given this, you can have a SEP that legally "discriminates" as you note in your post... but you can't have a solo 401(k) because that doesn't work for a business that has employees. If you actually did set up a 401(k), call the plan provider and ask about your options... my guess is they'll offer you a multiple-employees option. But here's the problem you'll discover... small employer 401(k) plans are often pretty expensive. (Commonly $2K, $3K a year... once you include everything.)... so probably you'll want to terminate the solo 401(k)...

FWIW: I'm a CPA practicing in the topic areas you're asking about...

[ethereality]

Thanks for your advice. That makes sense!