Guest WWPDRC Posted October 26, 2006 Share Posted October 26, 2006 I have a client, S-Corp (husband and wife, no employees) who currently have a profit sharing plan which also has merged money purchase plan assets. The client's CPA is recommending that they terminate the plan and transfer the assets to a SEP since the contributions would be the same with no TPA administration cost. The current assets consist of a checking account, which the client runs their contributions through, various brokerage accounts and various annuities. The client does not wish to liguidate any of the current assets. What pitfalls does the client face in trying to do this? Any help would be appreciated. Link to comment Share on other sites More sharing options...
Guest JBarid Posted October 26, 2006 Share Posted October 26, 2006 The primary difference between SEP and profit sharing plan contribution limits is that the 25% SEP limit is applicable to each individual participant, whereas the 25% profit sharing limit is applicable to the employer contribution as a percentage of the company's eligible payroll. So, if it's just him and his wife, they could be contributing the same amount in a SEP. I would recommend keeping the profit sharing plan and adding a 401(k) provision which would allow he and his wife to defer their salary(if they get one). They can defer AND make a profit sharing contribution which they can't do in a SEP. I'm not an investment person, but I am wondering why they have to liquidate and why they can't move their assets over in kind........ Link to comment Share on other sites More sharing options...
Gary Lesser Posted November 20, 2006 Share Posted November 20, 2006 Although the 401(k) would allow higher contributions/deductions (if desired) it can be done to save costs. Because of the investment mix finding a trustee may be difficult to find a single trustee/custodian that can hold all of the assets in a single IRA (unless some were sold and the proceeds transfered). Although, the annuity can be held in an IRA "trust" the IRA distribution rules would be tied into the annuities value rather than the minimum distribution provisions of the annuity contract. Can the annuities be converted to IRAs with an insurance company so as to avoid any charges or fees? Hope this helps. Link to comment Share on other sites More sharing options...
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