Client has SEP wants 401(k)

[Guest amm19]

Can someone point me in the right direction whether or not a new 401(k) can be implemented while currently maintaining a SEP? I know that there can be no overlap of SIMPLE pland and another qualified plans, but cannot locate whether or not this applies for a SEP as well. Thanks!

[mbozek]

A sep is trated as a DC plan. An employer can maintain a SEP in the same year as a 401(k) plan but must aggregate the contributions under the 415 limit of 40,000 and the limit on deductions to 25% of covered compensation with the 401(k) plan.

[Guest amm19]

Thanks for the response. Everything I have located in my search aligns with what you said about the plan aggregation rules.

Thanks!

[Guest Fishchick]

If the company uses the IRS Model 5305-SEP, it specifically excludes the employer from using the plan if it currently maintains (meaning funds for the same plan year) a qualified plan. See pg 1 under "When not to use Form 5305-SEP"

[Guest amm19]

Thanks fishchick. I saw that as well. In this instance, the SEP is already in place and has been for several years. They have made a contribution in January 03 for the SEP but approved the establishment of a 401k to add deferrals. So, in this case, it is the reverse of what was described in the model 5305 form.

[Guest Fishchick]

that may be, but if SEP contributions are made, they would be made under the plan document already in place, which would mean that if the employer uses 5305-SEP, they would have to restate to a non-model SEP that allows for the combination of 401k and SEP contributions in order to be able to do both.

[Guest amm19]

Very good point. Thanks!