New SAR-SEP Form

[Guest Jim Brennan]

Do all SAR-SEPs need a new form 5305A-SEP this year. If so, why?

[Guest Paul McDonald]

Look closely at the IRS forms and you will notice they all have an expiration date. What does this mean? An IRS notice, a few years ago, alerted practioners that the IRS was behind schedule in producing the new forms and that existing forms could continue to be used until the new forms were released. The expectation of the notice was the adopters of the expired forms were to adopt the replacement forms when released.

This notice made many people realize that the IRS expected that SEP plans under the IRS Model forms should have been adopting new forms as their old forms became obsolete.

The new SAR-SEP form has important changes regarding family aggregation, etc. that should be important changes for adoption. Just because the law changes, you are still to be bound by your plan terms. Notice that the IRS forms do not have a lot of language regarding cost of living adjustments, etc.

In the past I know of a SEP plan that was audited and had problems because their 5305 still had the $200,000 maximum compensation limit and the employer limited the contribution to $22,500. The IRS claimed this was not in accordance with their plan document. Would $30,000 have been allowed? Don't know, never heard the rest of the story. I believe the IRS had a problem with reasonable compensation in the first place, but there were ready to disqualify the SEP because the document had the wrong limit.

[Gary Lesser]

The most recent version of IRS model Form 5305A-SEP is 12-31-97. The instructions require that the new form be adopted by 12-31-98. See "Instructions for the Employer" on the model form.