5500EZs not filed and owners now want to rollover to IRA

[Cynchbeast]

Here is another twist on the EZs not being filed. We had a husband and wife plan for which we last prepared a 5500-EZ for 2004 (approx. $70k). Despite our efforts, they provided us with no information since then, and we finally gave up and dropped them.

The husband recently contacted us asking for our help. They now want to terminate the plan and rollover to IRAs, and they have had their broker speak with me. Fortunately, the plan still has only around $80k, so there were never any reports to be filed. They are prepared to file a final report.

However; The plan is a Money Purchase (contribution is 25%). They probably didn't make any contribution at least for most of the 8 missing years, and if and when they did, you can bet it wasn't in the right amount (Sole Proprietor).

It is highly likely that to have done everything properly with the plan, there would have had to be amendments for years they made other than 25% contributions, including a probably amendment to freeze the plan. Or alternatively, they would have had to start a Profit Sharing plan, and then merge the 2 plans. Or yet another alternative would be to just forget the whole thing and perhaps prepare the 5500EZs for their records. Obviously, making up the documentation now or not addressing the problem at all would not be strictly Kosher.

1. What are thoughts about this qualifying for EPCRS?
2. Any other brilliant ideas for handling this?

I look forward to feedback.

[ESOP Guy]

I think you need more facts before one can say for sure but based on the facts given.....

If they did not contribute the correct contribution for 8 years as you seem to assume I don't see how you can use any of the self corrections in EPCRS.

If they put in zero for all the missing years there is a chance a VCP might accept they had in effect frozen the plan years ago. I say this all the time but I am constantly amazed at what gets accepted through VCP. But I would get a legal opinion from someone who has a good amount of VCP experience before trying it.

As much as they would like to put the money into an IRA the cheapest solution might be to terminate the plan take the money and pay taxes on it. After all what you are describing sounds like a disqualified plan.

That is my quick thoughts on this one.