Pre-Existing SEP - First year 5500-EZ Filing for 401(k) Plan

[Towanda]

• Sole-Prop, owner-only client comes in with a 401(k) Plan with a value of $70,000 as of 12/31/2023
• They also have a pre-existing SEP valued at $190,000 as of 12/31/2023.  Went "dormant," and 401(k) was adopted in a later year.
• 5500-EZ was not filed for 2023

If the SEP was established as a formal plan for the business at some prior date and was never formally terminated but simply went dormant, should the value be included in the asset total for determining the $250,000 threshold?  5500-EZ Instructions say the threshold determination includes "all other one-participant plans maintained by the employer."  

I realize we treat a SEP as no longer being "maintained" when it is no longer receiving contributions, but I'm concerned about the implications in a 5500-EZ situation . . . not that anybody would know there was a SEP because there has never been a formal filing, BUT . . . I am curious!

We are taking over for the 2024 plan year.  The concern is, should we also have the client file a 2023 Form 5500-EZ for the 401(k) under the Penalty Relief Program . . . ?

[CuseFan]

I seem to recall this being asked (and answered, not by me) before in this forum and thought that SEPs do not count for such purpose as they have no such annual filing requirements regardless of the amount of assets. I suggest searching.

[Bill Presson]

Kenneth is correct. The SEP assets are in an IRA and dont count as qualified plan assets. 
 

Just don’t put any more money in the SEP either. 

[truphao]

Form 5500-EZ instructions do not refer to "other qualified plans" but rather to "other plans maintained by...".  SEP is indeed an indivudal IRA but it is established and maintained by a business entity.....My vote is to count the assets in SEP toward the 250K threshold...

[Paul I]

SEP are excluded from calculating the $250K threshold because the SEP is considered an IRA.

The 5500EZ instructions say to "You should use the total plan assets as listed as of the end of the plan year on line 6a(2) of this form to determine whether the plan(s) assets exceed $250,000. If an employer maintains one or more one-participant plans, the total assets of all one-participant plans combined must be counted towards the amount
of $250,000."  Since SEPs don't file a 5500 EZ, the SEP assets are not included in the determination.

 

[Bill Presson]

3 hours ago, truphao said:

Form 5500-EZ instructions do not refer to "other qualified plans" but rather to "other plans maintained by...".  SEP is indeed an indivudal IRA but it is established and maintained by a business entity.....My vote is to count the assets in SEP toward the 250K threshold...

Here’s an IRS site that says SEP money doesn’t count for filing 5500EZ. 
 

https://www.irs.gov/retirement-plans/financial-advisors-are-assets-in-your-clients-one-participant-plans-more-than-250000

[Towanda]

Thank you!