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Anyone know of the code section and official literature regarding the penalty for having both a model SEP and another retirement plan?


Guest Enda80
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As I understand it, the law does not allow someone to maintain both a model SEP and another retirement plan. Does anyone know of any official documentation forbidding this?

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It is not a law, but rather a condition of using the model and having reliance on the plan's qualification as to form (e.g., the model doesn not have any IRC section 415 language/coordination). Taken as a whole the two plans may not satisfy all of the requirements for qualification (whereas with a prototype plan they likely would) or might become discriminatory in operation. Other issues could arise (e.g., use of the model disclosure).

Have any plan, employer, or individual limits been exceeded or conflicts arisen?

Thus, the model form can be used but there is no assurance of qualification.

Note. Some trustees/custodians do not offer/have IRS approved prototype documents and rarely accept another institution's pototype forms (but may accept an IRS approved individually designed SEP).

Hope this helps.

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  • 1 month later...

"Thus, the model form can be used but there is no assurance of qualification. "

Do you think it is likely the IRS will disqualify the SEP? Is this correctable under EPCRS? It appears to be the failure to follow plan terms. Is it likely the IRS will require the distribution of the amounts contributed to the SEP in the year in which a qualified plan was maintained?

Are you aware of an institution that has a prototype that permits a qualified plan and a SEP to be maintianed at the same time?

I have a client with this problem and a prototype would help.

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