Multiple Retirement Plans

[Guest Benny Guy]

Can a company have a 401k plan AND a SEP IRA plan at the same time?

The searches only yielded "multiple employer plans" so pardon if this is a rehash of old topics. Anyway...

Company has a 401k, wishes to get rid of it. Can they stop allowing contributions into the 401k, and instead establish a SEP IRA which will accept all the new contributions moving forward. There doesn't seem to be a lot of literature out there about this. Any help / references / code would be appreciated. Thanks

[Guest Benny Guy]

bump.... anyone?

[rcline46]

First, a SEP-IRA CANNOT take employee contributions, so it is never a replacement for a 401(k) Plan.

If you are thinking of a SIMPLE-IRA, there are many threads on this.

[Guest Benny Guy]

First, a SEP-IRA CANNOT take employee contributions, so it is never a replacement for a 401(k) Plan.

If you are thinking of a SIMPLE-IRA, there are many threads on this.

Yes I know. The organization wants to disband the 401k and just have the SEP. I looked on the forums, I didn't find anything concerning a company having 2 retirement plans concurrently. If you have a link, please be kind and send it to me or reply with it.

The question was "Can a company have a 401k plan AND a SEP IRA plan at the same time?"

[Tom Poje]

in the ERISA Outline Book, Appendix C (Chapter 12)

there is a table comparing SIMPLE-IRAs to SARSEPs.

on the table on of the comparisons is

exclusive plan SIMPLE-IRA it says YES

SARSEP it says NO

[Jim Chad]

A SEP does not actually have an exclusive Plan rule. It is only the IRS form that forbids having another Plan.

If you use a mutual fund prototype for the SEP, it will probably work.

[Guest Benny Guy]

A SEP does not actually have an exclusive Plan rule. It is only the IRS form that forbids having another Plan.

If you use a mutual fund prototype for the SEP, it will probably work.

Thank you guys. Do you happen to know the IRS form that forbids having another plan? If we can run the 401k & SEP concurrently, that would be ideal, very good, wonderful. No one seems to really have an answer for me on this. One guy I called said they can't exist in the same plan year. The ERISA book, according to the helpful friendly poster before, said that there is no ERISA exclusivity rule. Now I have this IRS piece.

If the government rules don't forbid it, that'll be great.

P.S. just did a bit more looking: http://benefitslink.com/boards/lofiversion...php/t49464.html

Sounds like we can do it. Just need to use the prototype SEP?

P.S. again, you guys are great, magic google words brought up: http://www.irs.gov/retirement/article/0,,id=111419,00.html

Sorry for this simple question, but where can I get more info on a prototype SEP and individual SEP and how that is set up. A boring IRS publication would be nice.

[Bill Presson]

A SEP does not actually have an exclusive Plan rule. It is only the IRS form that forbids having another Plan.

If you use a mutual fund prototype for the SEP, it will probably work.

Thank you guys. Do you happen to know the IRS form that forbids having another plan? If we can run the 401k & SEP concurrently, that would be ideal, very good, wonderful. No one seems to really have an answer for me on this. One guy I called said they can't exist in the same plan year. The ERISA book, according to the helpful friendly poster before, said that there is no ERISA exclusivity rule. Now I have this IRS piece.

If the government rules don't forbid it, that'll be great.

The IRS Form 5305-SEP is the form that prohibits it. If you use that form to establish the SEP and the 401(k) still exists, you would be in violation. However many mutual fund and brokerage companies have developed and gotten approved their own Form 5305. They are usually a bit more flexible. But the only way to know would be to call fund companies until you find one with a form that would work.

Why not just amend the existing 401(k) and stop allowing deferrals? Just run it as a profit sharing plan.

[Guest Benny Guy]

A SEP does not actually have an exclusive Plan rule. It is only the IRS form that forbids having another Plan.

If you use a mutual fund prototype for the SEP, it will probably work.

Thank you guys. Do you happen to know the IRS form that forbids having another plan? If we can run the 401k & SEP concurrently, that would be ideal, very good, wonderful. No one seems to really have an answer for me on this. One guy I called said they can't exist in the same plan year. The ERISA book, according to the helpful friendly poster before, said that there is no ERISA exclusivity rule. Now I have this IRS piece.

If the government rules don't forbid it, that'll be great.

The IRS Form 5305-SEP is the form that prohibits it. If you use that form to establish the SEP and the 401(k) still exists, you would be in violation. However many mutual fund and brokerage companies have developed and gotten approved their own Form 5305. They are usually a bit more flexible. But the only way to know would be to call fund companies until you find one with a form that would work.

Why not just amend the existing 401(k) and stop allowing deferrals? Just run it as a profit sharing plan.

Thanks Bill, I made a few edits while you were posting. About the profit sharing strategy.... fees. The fee structures for SEP's are way lower than the 401k for this particular plan, about half, at least for the quotes I have. Plus the SEP is non-ERISA, correct? Or would the prototype SEP & individual SEP be ERISA?

[frizzyguy]

If they're worried about fees, than wouldn't two plans drive their fees even higher?

[Guest Benny Guy]

If they're worried about fees, than wouldn't two plans drive their fees even higher?

No. Neither plan has a base fee but is based on % of assets

[Bird]

There are some inconsistencies in your postings; first you want to get rid of the 401(k) but now you want to keep it. So I'm not sure about the motivation for this.

Long story short...I might set up a 401(k) and a SEP for a one person company, and then only to keep assets low in the "qualified" plan (the 401(k)) to avoid filing requirements as long as possible (no return required if assets are under $250K for a one-man plan). For virtually any other situation, it's very unlikely that splitting employee and employer money is going to simplify things and/or save money. Sounds like the tail is wagging the dog although I don't know enough about the case to say exactly why.

[Guest TBick]

The short answer is yes, you can have a SEP and a qualified plan at the same time. We used to do SEP's and Money Purchase plan combinations all the time, and while I may have missed something, I don't think the regs. have changed relative to this issue.

The information above about making sure the proper documentation should not be overlooked and you do need to be mindful of the applicable limitations.

[Guest Benny Guy]

Ok thanks everyone, helpful. Bird, the 401k plan can't just "end"... it will exist as long as there are plan assets. So the "desire" is the same, the talk about the plan's continued existence and running the SEP during that time cannot be avoided. We do not "want to keep it", we "must keep it" until the plan assets are removed.