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Contributed to a SEP for 1999; now want to put in qualified retirement


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Sole-proprietor currently sponsors SEP (via model Form 5305-SEP). Wants to adopt paired MP & PS Plans for 1999. Glitch - has already partially funded SEP for 1999. Rather than transfer SEP to a prototype (to allow a companion QRP) and coordinate the "discretionary" contributionn between the SEP and the PSP for 1999, can client request a refund of his 1999 SEP contribution (plus income) in order to, in effect, "un-do" the SEP contribution?

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This might be a good way to solve the problem. The form 5305 SEP says you may not maintain any other qualified retirement plans for the 5305 SEP to be valid. If the self-employed adopts a paired PS/MPPP, then the SEP isn't valid. Then the contributions to it are treated as normal IRA contributions. I believe they can then be removed from the IRA as excess IRA contributions. You will want to check with the Custodian of the SEP IRA to determine exactly what they will require from the individual to "recode" the contribuions as regular IRA contribuitons and then remove them as excess IRA contributions.

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I do not entirely agree. The contributions made by the employer were designated as employer SEP contributions. The SEP is not ipso facto bad; although the document does ~not~ carry any reliance as to ~form~, but is still a legal document (and is probably okay anyway if 415 not violated). IMO a SEP contribution has been made and causes the PS limit to be reduced by the deductible contribution. OTOH, if an employee was eligile, but didn't receive a contribution, then it could be argued that none of the SEP contributions are deductible (and amounts treated as wages). Unlikely that trustee will recode (amounts belong to employees). Even if employees agree, then amount contributed (transferred) to PS must come from a conduit IRA--which this is not. QP could be disqualified. BE CAREFULL

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