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Does the annual top-heavy test for SARSEP include contributions for th


Guest Larry J. Beckman
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Guest Larry J. Beckman

Does the annual top-heavy test for SARSEP include contributions for each year stand-alone, or does it include cumulative contributions since the inception of the plan? Example: Year 1 contributions were not close to being top-heavy, but Year 2 contributions were slightly top-heavy. Does the test for year 2 use the cumulative 2 year results which indicate not top-heavy, or does it use year 2 contributions only which indicate it is top-heavy? Any help?

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The IRS has unofficially stated that the plan balance to use in the determination of the top heavy status of a SEP is the contribution made to the plan for the year for which the plan is being tested. Logically, it is not practical to include prior contributions or balances for two (main)reasons.

1. A SEP , including a SARSEP, participant canusually withdraw their contributions at any time( becasue the contributions are immediately 100% vested). ADP/ACP test has been completed

2. The funding vehicle for a SEP is an IRA. This means that the account could include regular IRA contributions would could skew the result of the test.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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