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SEP with 401(k) in same year


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They ways clients can find to mess things up...someday I'm gonna write a book.

Client establishes a 401(k) plan for 2015. Had a SEP for 2014, and swore they didn't make any contributions for 2015. Now we find that they did, in fact, contribute to the SEP for 2015 - made two contributions FOR 2015 in January and February of 2015.

Don't know yet if this is a prototype SEP document that would allow contributions to another plan - if so, no problems. But that would be too easy.

Let's assume it is a 5305-SEP, or a mutual fund company clone that has same language so that no other plan can be maintained.

I'm stretching here - do you think it would be acceptable to amend their SEP document to a prototype allowing contributions to another plan? Personally, I don't think it is, at this point, since we are now in 2016.

Possible that the fund company (Putnam) would agree to transfer this directly to the 401(k) plan without reporting as a distribution, but I doubt it, and I couldn't blame them if they won't. Ditto for transferring it back to the employer. But, MAYBE they would...

Anybody ever submitted a VCP in this situation, requesting that the amounts remain in the SEP, and just make sure no 415 limits are violated between the two plans? With a SIMPLE-IRA, you can do this, and pay a 10% tax on the amounts retained in the SIMPLE, but I don't see this listed as an option for a SEP in the Appendix C "easy" fixes in Rev. Proc. 2013-12.

What a pain. Any additional suggestions/observations appreciated!

P.S. also possible that they could convince the fund company(ies) to reclassify as a 2014 contribution, but I don't know if they will do that either...

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Your "P.S." seems to provide a great solution. Assuming they won't exceed the deduction/contribution limit go back and amend the employer's 2014 tax return to claim the early 2015 contributions as "for" 2014 and you're done. We don't really care how Putnam "coded" the contributions.

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  • 4 weeks later...

If tax due date has not passed, the SEP could be amended into a prototype effective as of the first day of plan year (e.g., January 1, 2015). The P.S. approach, might work, but could cause discrimination or a bad allocation for the prior year (2014), not mention an excess contribution. Note that SEP contributions are reported by trustee or custodian for the year "in which" they are made. The year "for which" they are made is not indicated.

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