New 401k with existing SEP

[Guest TrustMe401k]

Calendar year company has an existing SEP. They have been funding these contributions quarterly. They would like to termionate SEP and start 401k with PS contributions as soon as possible.

Question is: What is as soon as possible? Can they start 401k in 2006 or do they have to wait until 1/1/07 since they have funded the SEP in 06? I am getting conflicting info form several sources.

Commenst and cites are appreciated

[Bird]

They can start a 401(k) in the same year the SEP exists; in fact, they can have both going forward (but probably don't want to). Just remember that 415 limits apply to all contributions.

Also, the SEP needs to be "run" on a full year. So just because they made quarterly contributions (presumably based on the quarter's compensations) doesn't mean that the contributions were right. Allocations need to be calc'd on the full year's pay and adjustments made if necessary.