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I know it has been discussed on many occasions before and I have searched through the prior threads.  But I can't make sense of some elements so I decided to post.  We know that one cannot use Form 5305 SEP if "Currently maintain any other qualified retirement plan. This does not prevent you from maintaining another SEP." 

Q1:  Can anyone explain the logic behind these instructions or give a reference to the legislative history/sections of the Code which resulted in such?

Q2: These instructions clearly indicate you cannot establish the SEP if DB exists but why do practitioners decide it is prohibited to establish a DB plan if SEP already existed? 

Q3: What is the meaning of the word maintain" in this context?  Is it in the context of "existing" or "deduction"?  In other words, is it OK to establish a new DB Plan in 2024 effective for 2023 (when SEP existed) but not take any deductions for contributions made to DB Plan for 2023?

Q4: What are the ramifications if a taxpayer ends up having SEP and DB Plan for 2023 (with no deduction is taken for DB contributions for 2023 tax year)?  What exactly is the nature of the failure and what are the penalties?

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I could be wrong but I think the limitations are using the Form 5305 does not have coordinating language with a qualified plan, mostly on top-heavy which is I believe the #1 reason why the IRS does not allow any other plan I think but there could be others. So you are allowed to use a proto-type SEP which then gets treated like a "quasi-profit sharing plan".

Most of the ramifications I believe all revolve around deduction of the combined employer contribution to SEP and DB plan or discrimination testing which isn't an issue if it is 1 man shop. So if you have no SEP contribution for the year, you are fine even if SEP account still exists holding the IRA assets. At least that's my understanding.

As to Q4, I don't know the legal answer. That is if your DB funding is $0 for 2023 (say by deducting the MRC in 2024) but the plan is in existence, does that cause a problem with the 2023 SEP deduction or its qualification if it is on Form 5305?

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