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SEP Beneficiaries


Guest PGH.ERISA
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Guest PGH.ERISA

It has always been my understanding that IRAs set up under SEPs or SARSEPs were not subject to any rules protecting surviving spouses (411(a)(11) does not apply because a qualified plan is not involved, but there is a parallel provision in ERISA Section 205). However, that question has now been posed directly to me, and I am now wondering whether my assumption was correct. Specifically, a SEP is an ERISA plan; however, it is a conduit to an IRA, which is not an ERISA plan. Can someone point out to me some defintive guidance on this subject?

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I don't have "definitive guidance" but I've always thought of a SEP as a vehicle to get money into an IRA...that is, ultimately you are dealing with an IRA and IRA rules for such matters. The IRA designation forms typically make some disclaimer about state law when designated a non-spouse beneficiary.

Ed Snyder

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It has always been my understanding that IRAs set up under SEPs or SARSEPs were not subject to any rules protecting surviving spouses (411(a)(11) does not apply because a qualified plan is not involved, but there is a parallel provision in ERISA Section 205). However, that question has now been posed directly to me, and I am now wondering whether my assumption was correct. Specifically, a SEP is an ERISA plan; however, it is a conduit to an IRA, which is not an ERISA plan. Can someone point out to me some defintive guidance on this subject?

The Conference Committee report to the 1978 Revenue Act contains the following statement "Amounts contributed to a SEP would be fully nonforfeitable (vested), and would be subject to the usual rules for IRAs."

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Even if a SEP plan is an ERISA-governed plan, an IRA is exempt from Part 2 of Subtitle B of Title I of ERISA. The survivor-annuity or spouse’s-consent rules of ERISA § 205 don’t apply to an IRA. ERISA § 201(6). ERISA § 205 doesn’t apply to a SEP-IRA. See, for example, Cline v. Industrial Maintenance Engineering and Contracting Co., 200 F.3d 1223 (9th Cir. 2000).

For more information about beneficiary designations (and restraints against them) in the context of SEP and SARSEP plans, read chapter 16 of SIMPLE, SEP, and SARSEP Answer Book – available at www.aspenpublishers.com.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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