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Terminate PS Start SEP


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I think I know the answer to this, but I'm having trouble finding anything to back up my theory.

We have an employer that will terminate their profit sharing effective August 1, 2009. They want to establish a SEP for 2009.

I understand that they can not use Form 5305 SEP if they maintain a qualified plan. Is it correct that by "maintain" another plan means to allocate contributions in a calendar year? If so, where can I find that in the regs?

So what I need to know....if we terminate the plan in 2009 and allocate no contributions in 2009 (but allocate gains and losses), can we use the Form 5305 SEP to establish a SEP for 2009? We will distribute the profit sharing plan assets in 2009.

Thank you.

QPA, QKA

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  • 2 weeks later...
Guest kprhok
I think I know the answer to this, but I'm having trouble finding anything to back up my theory.

We have an employer that will terminate their profit sharing effective August 1, 2009. They want to establish a SEP for 2009.

I understand that they can not use Form 5305 SEP if they maintain a qualified plan. Is it correct that by "maintain" another plan means to allocate contributions in a calendar year? If so, where can I find that in the regs?

So what I need to know....if we terminate the plan in 2009 and allocate no contributions in 2009 (but allocate gains and losses), can we use the Form 5305 SEP to establish a SEP for 2009? We will distribute the profit sharing plan assets in 2009.

Thank you.

I posted a similar question on the Terminations discussion board, so hopefully one of us will receive a response that will answer our question. You've probably seen the language at the following IRS link which states that a plan is "maintained" even if no contributions are made during the year. http://www.irs.gov/retirement/article/0,,id=137850,00.html

It still doesn't provide guidance on the question of whether an actual termination of the plan solves the problem. I am confident that input from others will help clear this up.

Update -----I just found in The CPAs Guide to Retirement Plans for Small Business, page 16, a summary of the rules for the 5305 model form. Among the requirements to adopt the Model SEP, the text states, "The employer must not maintain any other qualified plan. (A terminated Plan is not taken into account)." [italics mine]

I don't know if the language I've highighted in italics here was added by the authors based on a reg, discussions with the IRS, etc....

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