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Gary

Plan Implementation

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A business owner wants to start a one person plan for 1998. Is it acceptable for this person to just open up, say a money market account, contribute $1 prior to 1999 and have this be designated as the pension trust? I know it is a very trivial qustion, but I have never actually implemented a new plan.

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Guest derek

Sounds like your business owner may be considering a one-man defined benefit Keogh Plan. If the owner wants to make a contribution related to the 1998 year, then the plan has to be set up prior to year end. Generally, I think this means having an executed plan and trust document, as well as "funding" the trust. The trust should probably also have a tax id number. I am not sure what amount is necessary to be "funded", but most asset custodians probably have a minimum threshold for setting up a trust account (probably around $1000).

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Thanks derek. Does that mean a owner can just open a bank account (like a money mkt) as long as it is in trust agreement?

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The plan must be adopted on or before the last day of the plan year to create the plan but it is not clear if the plan must be funded by the year end. The issue regarding funding was that a trust cannot exist without a corpus so an initial contribution (if even only $1) was required to create the trust.

This was an active issue a number of years ago, but I have not heard any discussion about it lately. I know many practitioners have the client sign the document on or before the last day of the plan year and then make the contribution at some later date.

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