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SARSEP possible for Non-Profits?


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My organization adopted a SARSEP while they were still permissible. Later, the organization incorporated as a non-profit. The IRS has told us that nonprofits cannot have a SARSEP. I see in the code where a nonprofit can't create a SARSEP, but if an existing SARSEP is in place and then nonprofit status is attained, is that a bar to keeping a SARSEP?

 

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On 2/10/2021 at 3:54 PM, NonProfit GC said:

I see in the code where a nonprofit can't create a SARSEP

NonProfit GC, IRC sec. 408(k)(6)(E) says a governmental or tax-exempt employer cannot "maintain" a SARSEP. The IRS usually interprets "maintain" as applying to plans in the present tense, on a continuing basis, not to simply the time of formation.

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It is a yearly determination as to whether it is "maintained;" so no.

A more interesting question might be what happens if the organization ceased to be a non profit. Arguably, it could be resurrected.  Should the plan be adopted by the non-eligible employer for such an eventuality. Just speculating.

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19 hours ago, Luke Bailey said:

NonProfit GC, IRC sec. 408(k)(6)(E) says a governmental or tax-exempt employer cannot "maintain" a SARSEP. The IRS usually interprets "maintain" as applying to plans in the present tense, on a continuing basis, not to simply the time of formation.

Thank you so much Luke. I had not seen that maintenance language, and I agree that it is a term that implies ongoing duties.

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