Cloudy Posted October 17, 2017 Share Posted October 17, 2017 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. Link to comment Share on other sites More sharing options...
ETA Consulting LLC Posted October 18, 2017 Share Posted October 18, 2017 They can implement a Qualified Plan (CB or any other qualified plan) for 2017 and discontinue the SEP; since they haven't yet funded the SEP for 2017. Good Luck! CPC, QPA, QKA, TGPC, ERPA Link to comment Share on other sites More sharing options...
Mike Preston Posted October 18, 2017 Share Posted October 18, 2017 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? Link to comment Share on other sites More sharing options...
Belgarath Posted October 18, 2017 Share Posted October 18, 2017 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. Link to comment Share on other sites More sharing options...
jpod Posted October 18, 2017 Share Posted October 18, 2017 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"? Link to comment Share on other sites More sharing options...
ETA Consulting LLC Posted October 18, 2017 Share Posted October 18, 2017 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 Link to comment Share on other sites More sharing options...
Cloudy Posted October 18, 2017 Author Share Posted October 18, 2017 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. Link to comment Share on other sites More sharing options...
Calavera Posted October 18, 2017 Share Posted October 18, 2017 8 hours ago, Mike Preston said: If 2017 SEP contributions greater than 6% of 415 comp... ...but plan is covered by PBGC then all is well Link to comment Share on other sites More sharing options...
Cloudy Posted October 18, 2017 Author Share Posted October 18, 2017 The plan covers 3 owners and 3 spouses. There are no other employees. Each owner has 33.33% ownership. Link to comment Share on other sites More sharing options...
Mike Preston Posted October 18, 2017 Share Posted October 18, 2017 Is the CB plan a PBGC covered plan? Link to comment Share on other sites More sharing options...
Mike Preston Posted October 18, 2017 Share Posted October 18, 2017 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? Link to comment Share on other sites More sharing options...
spiritrider Posted October 19, 2017 Share Posted October 19, 2017 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. Link to comment Share on other sites More sharing options...
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