Jump to content

In Service Distribution from individual 401k to SEP IRA


Recommended Posts

PSP terminated April 2018.  PSP assets were directly rolled over to a Individual 401k created April 2018.

I401k Summary Plan Description states:
"Can I withdraw money from the Plan while I am still employed?  You will be able to take certain distributions from the Plan while you are still working for your Employer, as indicated below.
In-Service Distributions
You may request a distribution of your rollover and transfer contributions at any time."

Can I do a direct rollover of a portion of the assets in the I401k to my SEP IRA?  Will this trigger the 10% tax penalty?  Anything I should be aware of?

Thanks for your help.

Link to comment
Share on other sites

  • david rigby changed the title to In Service Distribution from individual 401k to SEP IRA

I agree with Bird. If prior sponsor was a truly independent business, this is just a rollover to your new plan. If the plan permits, you can roll it out at any time, and no distributable event is required. Guess the government figures you could have just not rolled it in the first place, or rolled to an IRA. Of course, if under 59-1/2 and no exception applies, there is a 10% federal tax penalty for premature distribution.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

Link to comment
Share on other sites

16 hours ago, Bird said:

...and you apparently have your own business?  I'd say it is ok, but the question comes up:  why?  What's wrong with leaving it in the 401(k)?  Do you not want that plan?

Yes, I am a sole proprietor.

The I401k and SEP IRA are managed by different custodians (i.e., brokerage firms).  The SEP IRA custodian has investment options that are different than those offered by the I401k custodian.  Because of this, I would like to directly-rollover a portion of the assets in the I401k to the SEP IRA.  A portion of the assets will remain in the I401k and the plan will continue to operate.

Link to comment
Share on other sites

I'm not a fan of letting the investment tail wag the plan dog, and that sounds like what is happening.  You could be experiencing either actual investment limitations in the 401(k) due to it being a broker-sponsored plan, or it might just be a perception.

But what you propose sounds ok.

Ed Snyder

Link to comment
Share on other sites

On 9/21/2018 at 6:29 AM, BT said:

Yes, I am a sole proprietor.

The I401k and SEP IRA are managed by different custodians (i.e., brokerage firms).  The SEP IRA custodian has investment options that are different than those offered by the I401k custodian.  Because of this, I would like to directly-rollover a portion of the assets in the I401k to the SEP IRA.  A portion of the assets will remain in the I401k and the plan will continue to operate.

For any year that you maintain both the SEP IRA and the 401(k), make sure you are not using the IRS Model Form 5305-SEP  ., as you are not eligible to use that form while maintaining another retirement plan for your business. In such cases, you would need to use a Prototype or individually designed SEP agreement , that allows you to maintain both a the same time.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

Link to comment
Share on other sites

  • 2 weeks later...
On 9/24/2018 at 5:21 PM, Appleby said:

For any year that you maintain both the SEP IRA and the 401(k), make sure you are not using the IRS Model Form 5305-SEP  ., as you are not eligible to use that form while maintaining another retirement plan for your business. In such cases, you would need to use a Prototype or individually designed SEP agreement , that allows you to maintain both a the same time.

I opened my SEP IRA in 1994 at Schwab. I was self-employed for a few months in 1994. I made a contribution for tax year 1994.

I repeated this in tax year 2000.

In 2003 and 2004, I did direct rollovers into my SEP IRA of three 401(k) plans. One each from three large companies I had worked for.Sole proprietorship opened 1/1/18. Individual 401k created at E*Trade in April 2018 for this sole proprietorship.

My SEP IRA remains at Schwab.

Given this information, what does Appleby's comment mean?

Link to comment
Share on other sites

3 hours ago, BT said:

Given this information, what does Appleby's comment mean?

If I understand correctly, you have a SEP IRA to which you are no longer contributing, and a 401(k) to which you are or will contribute.

The potential problem is about contributing to both, in or for the same year (if you are using the IRS model SEP and it's not known if you are).  I don't see a problem even if you are.

Ed Snyder

Link to comment
Share on other sites

On 10/9/2018 at 12:56 PM, Bird said:

If I understand correctly, you have a SEP IRA to which you are no longer contributing, and a 401(k) to which you are or will contribute.

The potential problem is about contributing to both, in or for the same year (if you are using the IRS model SEP and it's not known if you are).  I don't see a problem even if you are.

Yes, you are correct.  I have a SEP IRA... I no longer contribute to it.  I have a Individual 401(k)... I expect to contribute to it for tax year 2018.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...