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SEP rollover to 401k Plan


cpc0506
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Absolutely not.

The SEP is a traditional IRA where the taxpayer is in control.

Good Luck!

Maybe I need to add another piece of information. Employer X is a sole prop and the only employee of Employer X is X. And X will be rolling the SEP to the new 401k plan. Does this make a difference?

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No. It's still a voluntary rollover. A SEP is treated as a traditional IRA for all distribution purposes.

Nothing changes. Now, if he were to maintain a SEP and a 401(k) plan (why would he ever do that?), then the contributions to the SEP during the year will be combined with the balance in the 401(k) plan in determining whether those plans are top heavy. But, to rollover a SEP into a 401(k) plan will "NEVER" be considered a related rollover.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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Why are you worrying about TH if the owner is the only participant?

Client 'might' employee someone in the future. But, you're right, by the time the client hires someone, the plan will be top heavy at that point regardless, since the client will own 100% of the assets and since the document is new comp and the client intends to max out each year, it will be a longer time, if ever, that the plan would NOT be top heavy.

My next question would then be: what is considered a 'related rollover'?

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I don't know the answer. ERISAToolkit has given you an answer. If you feel the answer is not so clear (and I don't know whether it is or is not), wouldn't the advice be: "Don't do the rollover"?

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My next question would then be: what is considered a 'related rollover'?

A 'related rollover' is a 'transfer'. It's not really a rollover in that the employee would not have the option of rolling it over to another IRA. So, you would ask the question, can he roll it over to another IRA, or just take a cash distribution if he wants to? If the answer is yes, then it would not be a related rollover. If the answer is no, then it would be a related rollover (since it is really a transfer).

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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I would put it differently. A related rollover is a rollover of money that was in another plan of the employer at any time in the past. Employer includes controlled group and affiliated service group.

For example, the employer maintained a money purchase plan and terminated it 3 years ago. Employee rolled funds into a separate (conduit) IRA. Employer now starts a 401(k) plan and employee rolls this IRA into the 401(k). That is a related rollover. It is the same as if the employer terminated a defined benefit plan, and the employee did a direct rollover of the DB into the 401(k).

All of this is addressed in 416 and the regulations for 416.

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If an employee rolls over a SEP-IRA into the plan, and the SEP was maintained by the same employer that maintains the qualified plan, is that a related rollover, which must be included in the top heavy ratio? It would appear so, since SEPs are treated as defined contribution plans for top heavy purposes. See IRC §416(i)(6)(A). Courtesy of EOB.

PensionPro, CPC, TGPC

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