SEP IRA - Short Plan YEar?

[austin3515]

Can I discontinue a SEP as of 9/30/2014 (calendar year is the plan year)? Effective 10/1 we want the Er contributions to go to the new 401k/PS plan.

[Flyboyjohn]

Important fact needed to respond: has the employer already made interim SEP contributions for and during 2014?

If not, no worries

[austin3515]

_{my bad, yes they fund every pay-period.}

[Bird]

I don't think there's any such thing as a short year for a SEP. You either have one or you don't. Could possibly be coordinated with a 401(k) if some contributions have been made.

[austin3515]

What do you mean coordinated with a 401(k)? If I need a straight percent of pay in the SEP I'm not sure how to do that if I stop mid-year. Or are you suggesting I can somehow take into account the contributions made in the PS Plan?

[Flyboyjohn]

If you're using the IRS Form 5305-SEP I believe it prohibits any other plan in the same year so adopting a 401k I suppose "blows up" the current year SEP contributions, which I guess means adding them to W-2 wages and telling the employees they may have excess IRA contributions that may need to be withdrawn. I haven't looked at the SEP Fixit Guide but probably a good place to start.

If you're fortunate enough to have been using a SEP document that permits "other plans" I guess I'd look at that document to see what it says about co-ordination between the 2.

[austin3515]

you're thinking of a SARSEP, which I only know because I just had a similar issue. There is no issue having a SEP and another plan. IF I am mistaken, please let me know, but I believe you will post again acknowledging I am correct...

[austin3515]

'Tis I am who am mistaken. I hereby bow down to your extensive expertise

[Gary Lesser]

Assuming a prototype plan is in place before the plan is terminated a 401(k) plan cd be adopted. Contributions to the SEP are treated as contributions to a profit-sharing plan for purposes of the deduction limits under Code Section 404. See 404(h)(3). I wouldn’t call it a short plan year; but rather a termination or discontinuance of the SEP. Treating a model as defective and participants treating contributions as excesses could get ugly. A decent consultant could handle the calculations under 404 and 415. Hope this helps.