SEP conversion

[wsp]

A client who was operating a SEP, amounts calculated by my firm (CPA), was approached by Fidelity to have their assets invested there. Well during the typical Fidelity glossy sales talk the salesman told my client that the SEP could only be run for so many years and they should convert the plan to a SIMPLE plan. The clients did as they were advised and contributed the maximum amount to the SIMPLE. Now, it's tax time and we are just hearing about this.

Has anyone ever heard of this happening before?

What is their recourse? As they have always contributed the maximum 15% before and would have done again this year. They are now shorted? Can we pull all the assets out of the SIMPLE as administrative error and contribute to the SEP instead?

HELP!!!!

[jevd]

Make SEP contribution and remove SIMPLE contributions as ineligible by tax filing date.

[Appleby]

jevd is right. I have a client with the same issue. Since the IRS says a SIMPLE cannot be maintained in any year that the employer maintains any other plan, then making a contribution to the SEP makes the SIMPLE an ineligible plan for that year and the contributions (SIMPLE) should be removed as return of excess-contributions.

[wsp]

Ok, thanks for the input...Now, have you ever heard of such tactics from a company like Fidelity?

It clearly is against the best interests of the client of a client that consistantly contributes the maximum amount to the SEP and intended to do so again, even with the maximum percentage increasing.

[Appleby]

No. Maybe there was some miscommunication?

[wsp]

Ok, thanks for the input...Now, have you ever heard of such tactics from a company like Fidelity?

It clearly is against the best interests of the client of a client that consistantly contributes the maximum amount to the SEP and intended to do so again, even with the maximum percentage increasing.

[chris]

If by tactics you mean selling someone on a product just to get the investment $$$$ regardless of whether the product meshes with/ does not conflict with the current retirement plan in place, then yes...

[Guest Fishchick]

Sounds like a miscommunication to me. I happen to know that there is no incentive for a Fidelity rep to sell a SIMPLE over a SEP. The rep may have suggested the SIMPLE thinking the comp was low enough that the SIMPLE would allow a higher contribution level, especially pre-EGTRRA.