We want to set up a retirement plan for an individual (1 participant plan).

The participant receives Sched. C income as an independent contractor that sells mutual funds. This is his primary income.

In 1999, he will also receive a Sched. C for income earned as an independent contractor that sold insurance. He has retired from the insurance company. He was a statutory employee of that company and, as such, was not eligible for their retirement plan.

Can we use both Sched. C incomes in the new plan?

I don't think you can use the 2nd Sch. C income for purposes of the retirement plan of the 1st Sch. C business. The mutual fund business is the employer/plan sponsor in this case. The Sch. C independent contractor is the single employee of the plan sponsor. For plan purposes, you can only consider income earned from/for the plan sponsor business, not from any other business.

Look at it a different way . . .

Say that the person is a full-time employee of a corporation. He participates in the employer-sponsored retirement plan. This person also works part-time for another employer (corporation or otherwise). Would his income from the part-time job be considered for purposes of the retirement plan of his full-time employer? Of course not.

The same applies in your case. Even though this person is both employer and employee of two different businesses, they are just that -- two different businesses. Income from one business cannot be considered for the retirement plan of another business.