AKconsult 6 Report post Posted February 12, 2018 There seems to be a consensus, based on various Q&As on this forum, that an employer cannot maintain a 5305-SEP and a 401k in the same year. I am not sure I agree with that. Can someone please provide a source for this? I see on the IRS website that an employer may not use a Form 5305--SEP if it maintains any other qualified plan -"maintained" means even if no contributions are made - but if an employer terminated the SEP as of 2/28/18 and then started up a 401(k) plan on 3/1/18, wouldn't that be acceptable? In that instance, the employer is not "maintaining" both plans. Yes, it would have had both plans in 2018, but they weren't maintained at the same time. I can't find anything from the IRS that would prohibit this fact pattern. Any thoughts? Thanks! Share this post Link to post Share on other sites
Bird 433 Report post Posted February 13, 2018 I think the intent is that you can't make contributions to both plans for the same year. I wouldn't try to stretch that by, say, alternating contributions from year to year, but I would not be concerned if the SEP existed in 2018 with no contributions actually made for 2018. Share this post Link to post Share on other sites
AKconsult 6 Report post Posted February 13, 2018 Thank you Bird. That is what I am trying to determine, can contributions be made to both plans in the same year? I have seen a lot of opinions to that effect, but I can't actually find anything on the IRS website that specifically says that. I, too, think that is the intent, but I am speaking with an advisor who is questioning that, and I think he has a valid point The IRS website just says you can't set up a 5305 SEP if you maintain another plan. So, to the advisor's point, why couldn't the employer have a SEP for part of the year and make contributions to it, then terminate it and start up a 401k and make contributions to that? The employer would not be "maintaining" both plans in that case. Share this post Link to post Share on other sites
spiritrider 30 Report post Posted February 13, 2018 Rather than trying to rationalize why it might be permitted. Why not amend the SEP IRA plan to a prototype plan effective 1/1/18 and then adopt the 401k also effective 1/1/18 Share this post Link to post Share on other sites
Larry Starr 344 Report post Posted February 13, 2018 "Maintaining" has always been read by the IRS to apply to any part of a given calendar year. Thus, if you adopt a 401(k) during the year when you had a 5305-SEP in existence, you have violated the terms of the 5305 document and no longer have a "good SEP" for the year. You can have both plans during the same year but only if you adopt a non 5305 SEP (a prototype one) which has all the necessary language to make sure all the annual limits are met when you combine the two plans. "Maintaining" is not measured by coincidence of time; it measured by coincidence of the same calendar year. And yes, as spiritrider suggests, if it is important to keep the SEP, then amending to a non-IRS document (to a prototype document with the necessary coordination of benefits language) is one possible solution. More usually, by the end of February, the employer has not contributed anything for the 2018 year, so just getting rid of the plan (with no contributions for 2018) should solve the problem. And if contributions have been made, recharacterize them as compensation paid to the employee and an IRA contribution by the employee. We have done that many times. Share this post Link to post Share on other sites
Mike Preston 453 Report post Posted February 13, 2018 Or just go with the EPCRS correction. It may have changed since I last reviewed this issue but isn't it a $250 filing fee and the correction is to exclaim loudly: "Aw, snap! We shouldn't have contributed to the SEP, so we heretofore promise not to make any further contributions to the SEP. Thanks for listening!" Or did that correction method go away? Share this post Link to post Share on other sites
JackS 27 Report post Posted May 7, 2018 On 2/13/2018 at 2:37 PM, spiritrider said: Rather than trying to rationalize why it might be permitted. Why not amend the SEP IRA plan to a prototype plan effective 1/1/18 and then adopt the 401k also effective 1/1/18 Does anyone k now where one could find a Prototype SEP? I cannot find one. Share this post Link to post Share on other sites
spiritrider 30 Report post Posted May 9, 2018 You do realize this thread is three months old. Are you sure you really need/want one. Last I knew, two mainstream custodians with prototype SEP IRA plans were Schwab and ML. If you want somebody to make money off of you, I'm sure there many advisor-based firms that will oblige you. Your best bet might be a SEP IRA/one-participant 401k plan pair through a TPA. Share this post Link to post Share on other sites
JackS 27 Report post Posted May 10, 2018 I do realize that. I wanted to know where to send people who want one and won't listen to reason. I don't understand your last statement. I am not sure why a TPA would sponsor a prototype SEP. They would just use a PSP. Anyway, add US Bank to the list. The advisor came up with the Prototype SEP doc. Share this post Link to post Share on other sites
TPApril 10 Report post Posted March 15 SEP intended to end 12/31. Next day, 1/1, new 401(k) effective. Any issues with a SEP contribution made for prior year after plan year end in the same year that th 401(k) plan started up? Share this post Link to post Share on other sites
Bird 433 Report post Posted March 16 On 3/15/2020 at 2:28 AM, TPApril said: SEP intended to end 12/31. Next day, 1/1, new 401(k) effective. Any issues with a SEP contribution made for prior year after plan year end in the same year that th 401(k) plan started up? no Share this post Link to post Share on other sites
Bill Presson 219 Report post Posted March 16 On 3/15/2020 at 1:28 AM, TPApril said: SEP intended to end 12/31. Next day, 1/1, new 401(k) effective. Any issues with a SEP contribution made for prior year after plan year end in the same year that th 401(k) plan started up? No maam. Share this post Link to post Share on other sites
