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Employer maintain SARSEP and a 401(k)?


Guest MaggieNme417
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Guest MaggieNme417

I have an employer that currently has a profit sharing plan and a SARSEP. If they implement a 401(k) feature, can the participants contribute to both plans if all contributions are aggregated for testing?

If the answer to that is no and they cannot maintain both plans, my guess is they would have to wait until 1/1/05 to implement the 401(k) feature?

Also, am I correct in my conviction that SARSEP accounts can now be rolled into qualified plans?

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Each plan must be separately tested for discrimination. Combined limits would generally apply under 415 and 402(g). The SEP contributions reduce the otherwise applicable P/S deduction (plus elective) limit on a dollar for dollar basis.

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… no, they would not need to wait until 01/01/05 to establish the 401(k) plan. It can be established for 2004.

Yes, you are correct. SARSEPs can now be rolled over to qualified plans. Amounts subject to the ADP test should not be rolled over until those amounts have passed the ADP testing.

Note: For SARSEPs, one should be aware of the exclusion limit under I.R.C. § 402(h),

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https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

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  • 4 months later...

If the qp has provisions to accept such contributions they can be transferred to the qp. Current year SARSEP contributions can't be rolled over until after the employer provides the req'd notice or (generally) March 31, 2005.

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