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Can a SAR SEP be invested at multiple institutions?


Guest Bergybass
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Guest Bergybass

Can a company owner with 6 employees invest with a different financial instiution than his employees do.

Right now they all invest (employees and employer) through a popular mutual fund company and he would like to invest in another popular insurance company. He wants to roll or transfer his current SAR SEP money here and make new contributions at this insurance company as well.

Can he go elsewhere with his SAR SEP and does he need to notify the employees if he does so?

I figured that this would be OK since SAR SEP's are basically glorified IRA's.

Thanks.

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There can be no limitations on the ability of SEP participants to withdraw (& hence directly transfer) their funds. (IRC Section 408(k)(4).) As long as the employees understand the rules, owner can do what he wants once the funds are deposited. I assume he can also deposit funds in multiple locations, if everyone knwos of that ability.

By the way, how can such a small employer continue to maintain a SAR-SEP?

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Bergybass - Some additional information might be helpful. The insurance company will require that the employer have a SEP agreement to establish a SEP/SARSEP-IRA. It is doubtful the insurance company would accept the mutual fund's SEP agreement for that purpose. Please clarify--

1. Are the non-integrated IRS model forms being used for the SEP?

2. Would an integrated plan be more suitable with 6 employees?

3. Will both IRA sponsors accept the same SEP document (e.g. model SEP) or will employer maintain both plans?

4. Will subsequent contributions for all employees, or just the owner, go to the insurance company IRA?

5. Might there be any fiduciary considerations involving sales charges/breakpoints if the owner's account were to leave the pool (or for that matter switch entirely to an unrelated pool)? Although the owner has the right to do (say a rollover or transfer) to another traditional IRA, could it cause a fiduciary breach? Hopefully, someone with more expertise than I have, will respond to this item 5.

Clearly, if any employee is able to select an outside institution (or selected institutions) then all employees would have to be given that option; and clearly have notice of that right. In fact, they would have to be given the opportunity to have their contributions go to the IRA or IRAs available under the plan(s).

Unless a group IRA trust is being used, it would not be possible to require that employees move existing funds to another institution.

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