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Alternative re second spouse and changing beneficiary designation


chris
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Participant wants to designate kids from a prior marriage as beneficiaries of his account in a MPPP, however, spouse most likely will not consent. A suggested alternative is to freeze the MPPP and set up a SEP-IRA. Since SEP-IRA's are not subject to the survivor annuity rules, the participant could designate his kids without needing spouse's consent. Clearly, there are marked differences (eg, vesting, etc...) b/t a SEP-IRA arrangement and the MPPP..... Suggestions??

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Freeze the money purchase plan? Is this a one-participant plan?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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SEPS cannot exclude part time employees who work less than 1000 hours in a year. All employees who have service in 3 of last 5 yrs must participate. Also there is no reallocation of forfeitures in a SEP and no loans. SEP can not invest in LI or collectibles. NO annual reporting, SPDs or fiduciary rules apply to SEPs. Why not give the kids the business if he dies? It is a captial asset and if it has value it can be taxed as CG rate of 20%. Also if kids are under 18 guardian must be appointed to own property they inherit.

mjb

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Kids are adults, but the business is a dental practice. The main objective is to get qual plan monies going forward to the kids and not to the second spouse (by way of the pre-retirement survivor annuity rules). The restrictions/differences b/t the SEP-IRA arrangement and the current MPPP may be acceptable given the objective.

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The MPPP could be terminated and rolled to an IRA (no spousal consent for beneficiaries) and then the dentist could start a SIMPLE IRA plan. My clients who have gone from a SEP to a SIMPLE were able to cover fewer employees and get a larger contribution themselves. However, the simplicity of the SEP has many positives especially now with the 25% limitation.

Mary Kay Foss CPA

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