How to terminate a SEP?

[Guest Do]

How does one terminate a SEP (not a SARSEP)? Can a SEP be terminated on the last day of a plan year effective as the first day of the plan year, or do employees have an accrued benefit which must be funded? Thank you in advance.

[Guest Paul McDonald]

Since a SEP contribution is discretionalry by the employer of 0% to 15% of compensation, the employer can stop making contributions at any time. The plan isn't really officially terminated in a formal process like a qualified plan, it is more or less discontinued by the employer no longer making conrtributions to the IRAs (accounts or annuities) of the employees. The so-called SEP IRAs remain IRAs.

[Gary Lesser]

In nearly all cases a SEP is discretionary; thus, a vanilla SEP can be forgotten at any time. To get rid of it more formally, amend it by resolution and follow the participant notice requirement contained in the document for "any amendment."