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SEP and Qualified Plan


Guest Thornton
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Guest Thornton

I have a client company who sponsors a SEP and a new 10% Standardized MPPP. The SEP came first, and the company uses Form 5305-SEP, which according to the instructions on Form 5305 it can no longer do. We assume that a prototype must be used instead. Attempts to locate one have been futile. The SEP assets are invested at Schwab, who apparently tells sponsors to use Form 5305.

Am I missing something here? What are our alternatives? If there are any SEP experts out there, I thank you in advance.

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You are correct; a model SEP can no longer be used with a qualified MP pension plan. Many sponsor's (mutual Fund & Ins. Company's) have _prototype_ documents that allow for a tandem MP plan. Actually, they _can_ use the model plan, BUT the plan carries no IRS reliance as to form, nor may the alternate disclosure requirments (that is, the notices contained on the model form) be used to exempt the plan from ERISA coverage.

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  • 2 weeks later...
Guest Wineman

Query: Employer has an existing 401k plan. Approx 12 participants. He wants to terminaet the plan because he is sick of the high costs and wants to start a simple ira. in 1999. I see a problem due to reg 1.401(k)-1(d)(6) rules applicable to distributions upon plan termination. If the Employer terminates the plan (which is considered a distribution event) and makes a distribution he will be prohibited from starting a simple ira for the 12 months following the distribution. My research has led me to the possibility of coverting the 401k to a simple 401k, creating a SEP, or waiting a year to start the simple IRA. Bottomline my clients wants to save money. Do you see any way around the 12 month prohibition and immediately starting a simple ira? One more question. If the Employer does start a simple IRA, one year later, can you rollover into a simple IRA from a SEP or simple 401k? Thanks for any help you can provide.

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