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SEP IRAs and defined benefit plans

Guest jbc@edj

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Guest Taxwoman


However, this rule does seem pointless since the 1.0 rule was repealed.

The hope is that this will be addressed soon, but as it stands now, this stupid rules is still in effect

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Are we saying that the employer could adopt the SEP and effectively any testing limitations would no longer have an effect?

Or at this point in time regardless of when the company had a DB plan (ie. terminated one in the late 70's) they cannot adopt a SEP plan.

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What rule is it that says that a former DB sponsor may not adopt a prototype SEP? The 2000 version of form 5305A-SEP(post TRA 97), dropped the language about former DB sponsors not being eligible. Is there something in the Code, regs or other? I agree that it no longer makes any sense with the repeal of the 1.0 rule.

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You have a typo - I think you meant to say 'does', instead of "does not ".

It is the 5305-SEP that cannot be used if the employer maintains any other plan. The SEP prototype can be paired with a money purchase pension or profit sharing plan.

I do not agree. A model document MAY also be used in this instance. See below. (gsl)

Life and Death Planning for Retirement Benefits by Natalie B. Choate



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I was not clear. My client terminated a defined benefit plan in 1989. In 1992 they adopted an individually designed SEP including 415(e) limitations. We believe that they should now be able to adopt the 5305A-SEP as the instructions no longer include the language about current or past sponsors of defined benefit plans not being eligible. Am I missing something?

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Since the defined benefit plan was terminated, the model (or prototype) forms may be used to establish a SEP. Form 5305-SEP provides as follows. Note, the words "Currently maintain."

When not to use Form 5305-SEP. Do not use this form if you:

1. Currently maintain any other qualified retirement plan. This does not prevent you from maintaining another SEP.

2. Have any eligible employees for whom IRAs have not been established.

3. Use the services of leased employees (described in section 414(n)).

4. Are a member of an affiliated service group (described in section 414(m)), a controlled group of corporations (described in

section 414(B)), or trades or businesses under common control (described in sections 414© and 414(o)), unless all eligible employees of all the members of such groups, trades, or

businesses participate in the SEP.

5. Will not pay the cost of the SEP contributions. Do not use Form 5305-SEP for a SEP that provides for elective employee

contributions even if the contributions are made under a salary reduction agreement. ......

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