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IRS Model SEP


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Company has an IRS Model SEP and wants to start a new CB plan. Can they start the CB plan for 2017? Does it matter if any SEP contributions have been made yet for 2017? If they cannot start the CB plan under the current situation, can they terminate the SEP before year end and then adopt the CB plan before 12/31/17. Is there any way that they can start the CB plan for 2017 and be in compliance?

I was under the belief that if the IRS Model SEP existed at any time during 2017 then they cannot start a qualified plan, but I have never faced this situation in actual practice.

 

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I'm not sure I agree with the entire premise of this discussion. Worst case: IRS Model SEP and 2017 contributions already made.  Solution (well, sort of): adopt prototype SEP before due date of 2017 tax return and implement DB plan in 2017.  If 2017 SEP contributions less than or equal to 6% of 415 comp then all is well.  If 2017 SEP contributions greater than 6% of 415 comp then fight with 404(a)(7) to determine max deductible contribution to DB plan.

What am I missing?

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I wonder if an IRS auditor would agree that this is a valid solution? I don't know the answer to that, but perhaps they would take the approach that since the contributions were actually made while under the dictates of the IRS Model SEP, that you can't rewrite history by simply adopting a prototype SEP after the fact.

I'd consider this an aggressive (albeit possibly valid) approach. Wouldn't do it myself, but then, I'm a notable coward on these things.

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Isn't the rule that you can have reliance on the Model SEP only if you don't have another plan?  So, if you do have another plan, but you follow all the rules, why would there be any adverse consequences of losing "reliance"? 

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5 hours ago, Mike Preston said:

What am I missing?

You're not missing anything. The question left many missing details.

When I first read it, I said "No way were the contributions already made for 2017.  After all, you would even know what Compensation to allocate the contributions on.  That's why I mentioned 'since you haven't funded the SEP for 2017.'  Many times, employers fund their 2016 contributions by their extended tax filing deadline (in 2017)  and it gives the impression that it was 'funded for 2017'; when it was not.

You didn't miss anything, except for a fact pattern that missed many details.  Even if contributions were funded early, it would help to substantiate that by establishing that you're aware of the difference between 'funding for 2017' and merely 'depositing 2016 contributions in 2017' when asking the question.  Then, we know which question to address.  My answer was based on the likelihood that the deposits made in 2017 were actually used to fund 2016.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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I have always understood that the form of SEP is adoptable as late as the due date of the tax return.  Nobody argues with the ability to initially adopt a SEP that late.  Why would there be any requirement to adopt an amendment/restatement any earlier than an initial adoption?

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14 hours ago, Cloudy said:

I was told that the 2016 SEP contribution (deposited in 2017, I think) exceeded the allowable limit so the "excess" is being applied as a 2017 contribution. 

This is usually the best solution to an excess contribution that was actually made in the year following the tax year.

However, if instead the excess contribution was removed on or before 10/16/17, and no other contributions were made in 2017 for the 2017 tax year, there would not be an active SEP IRA for 2017.

I agree with Mike Preston, that the best current solution is an amendment/restatement to a prototype SEP IRA plan effective 1/1/17.

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