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SEP IRA - Short Plan YEar?


austin3515
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If you're using the IRS Form 5305-SEP I believe it prohibits any other plan in the same year so adopting a 401k I suppose "blows up" the current year SEP contributions, which I guess means adding them to W-2 wages and telling the employees they may have excess IRA contributions that may need to be withdrawn. I haven't looked at the SEP Fixit Guide but probably a good place to start.

If you're fortunate enough to have been using a SEP document that permits "other plans" I guess I'd look at that document to see what it says about co-ordination between the 2.

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  • 1 month later...

Assuming a prototype plan is in place before the plan is terminated a 401(k) plan cd be adopted. Contributions to the SEP are treated as contributions to a profit-sharing plan for purposes of the deduction limits under Code Section 404. See 404(h)(3). I wouldn’t call it a short plan year; but rather a termination or discontinuance of the SEP. Treating a model as defective and participants treating contributions as excesses could get ugly. A decent consultant could handle the calculations under 404 and 415. Hope this helps.

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