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SEP to 401k


Guest LSULLIVAN
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Guest LSULLIVAN

Can I switch from a SEP to a 401k at anytime during the year?

If they made a contribution this year?

If they have not made a contribution this year?

Can SEP be rolled into the 401K?

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The switch can be made, regardless of whether contributions have been made to the SEP. The main and perhaps only concern is to be sure to consider both plans in the aggregate, when measuring section 415 and 416 compliance.

If the 401(k) document allows rollovers from IRAs, then it's up to the individual participants to roll or not.

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Also, if an employer maintains a SEP in the same year that the employer maintain a qualified plan, the SEP cannot be a 5305-SEP…instead, it must be a prototype or individuallya designed SEP.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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Why can't the plan document for the SEP be a Form 5305-SEP? Granted, the 5305-SEP includes a sentence that says not to use it if a qualified plan is maintained by the same employer. The only plausible reason I've ever heard for the preclusion is that the 5305-SEP is designed for the 1 plan employer. The existence of another plan would require a few more sentences to account for section 415 and 416 provisions.

Presuming the plan sponsor has complied with any operational areas where the 2 plans interface, on what basis does either plan have a problem?

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Guest LSULLIVAN
Why can't the plan document for the SEP be a Form 5305-SEP? Granted, the 5305-SEP includes a sentence that says not to use it if a qualified plan is maintained by the same employer. The only plausible reason I've ever heard for the preclusion is that the 5305-SEP is designed for the 1 plan employer. The existence of another plan would require a few more sentences to account for section 415 and 416 provisions.

Presuming the plan sponsor has complied with any operational areas where the 2 plans interface, on what basis does either plan have a problem?

Am I correctly interpreting that they can not start a qualified plan if they have funded the SEP this year? I asked a local TPA the same question and their response was the same that this could not be done.

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Saabra, if the model is not used according to its terms, the SEP plan is not able to use the alternate (read: "simple and easy) participant disclosure rules under the DOL regulations. So, to avoid having to operate in a very grey area of SPD and notificion design, the employer might consider amending the plan to a prototye if adopting a 401(k) for the same year. The plan administrator should be made aware of any SEP contributions made for the year.

Also, if the plan is not used according to its terms, the plan has a "qualification failure" that would need to be corrected. [see Rev Proc 2004-44]

Hope this helps.

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Sullivan, you can maintain a qualified plan for the year if you funded a SEP- you just need to make sure the SEP is a not a 5305-SEP, and if it is, ensure that it is amended to a prototype or individually designed SEP.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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