Discussion:Ending Keogh; Starting Simplified SEP

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Discussion Forum Index --> Tax Questions --> Ending Keogh; Starting Simplified SEP


Jake (talk|edits) said:

1 April 2006

Just me in this business - age 63. Started Keogh mpp and psp plans before the higher limits on simplfied SEP's. Would like to stop Keogh, start Simplied SEP, and then roll over Keogh to Simplified SEP if possible or to IRA if not possible. Reason is (1) gain flexibility in contribution amounts, and (2) not have to file those damn 5500-EZ's. I assume I have to make my Keogh contributions for 2005 income, but what do I need to do to stop/freeze these Keogh plans at that point and start Simplified SEP? I think under new law all retirement plans have similar creditor protection (IRA'S etc.)

Meadowglenatmonroe@frontiernet.net (talk|edits) said:

9 July 2006
Sunday, July 09, 2006

Greetings, Jake.

What is a psp plan?

Thank you.

ConservativeDC (talk|edits) said:

9 July 2006
All you must do is terminate the Keogh plan and roll your vested balance into a SEP-IRA (if your trustee allows it), or a rollover IRA separate from your SEP-IRA if they don't allow a direct rollover.

You will need to file a finalized 5500-EZ for the last year of the Keogh, and then you're done.

RussR (talk|edits) said:

25 January 2007
What about having to file Form 5310 in order to terminate a Keogh plan? From what I am seeing from IRS, you need to complete and file the Form 5310 with in 30 days of terminating the plan.

Deback (talk|edits) said:

January 25, 2007
No, you would only need to file a final 5500-EZ to terminate a Keogh plan.

Stolidman99 (talk|edits) said:

14 March 2007
Perhaps the form 5310 is useful only for the termination of a defined benefit plan if there is more than one participant because the distribution of assets between participants with varying rights to those benefits can be very complex. Presumably the services of an actuary would be required in order for the plan to fulfill all the fiduciary duties in distribution of those assets. Since the plan administrator,plan participant and employer are all one and the same in a sole participant Keogh the issue of asset division and then a total distribution of assets should not arise and the form 5310 would serve no purpose. Sounds logical?

Jake (talk|edits) said:

31 July 2009
Two years later I am back- Never ended my Keogh plans (money purchase plan and profit sharing plan).

Now I have to because Vanguard is no longer going to support Keogh plans. Vanguard tells me that it is too late to terminate as of 12-31-2008, that there is no formality to terminate - "just write a letter to yourself and keep in your file". Vanguard is going to charge me $200 if I do not terminate in 2009.

I would like to make my contribution for 2008 the final and with 2009 start a SEP-IRA instead. As always I have an extension to 10-15-09. This is a one person Keogh plan (me). What does IRS care if I decide now to terminate my Keogh as of 12-31-2008.

[The Form 5310 ask for an IRS determination - it does not appear to be mandatory to ask for that. All my paperwork has been IRS approved Vanguard Plans so there should be no risk that they are not in order.]

Jake

Marty1970 (talk|edits) said:

31 July 2009
You definitely should end the money purchase plan. You may want to reconsider ending the profit sharing plan. Ohio appears to be one of the states that's least protective of IRA based plans in bankruptcy. See for example the 2 year old chart obtained by googling "assetprotectionbook.com/state." Scroll down to Ohio.

If you decide to keep the profit sharing plan, the MPPP can be rolled over to the PSP. Money purchase plans are approaching dinosaur status. The profit sharing plan gives you one of the 2 features you sought back in 2006, contribution flexibility. The entire 25% deduction limit is available with a PSP, and it's discretionary.......You can choose 0% for a given year or any level you like up to the 25%.

If you're ok with standard brokerage investment offerings, you can restate the profit sharing plan onto another broker's document, such as Fidelity, et al. This avoids terminating the PSP and is literally a continuation of the existing plan. As you may know, there is potential for still more flexibility in the contribution amount if you restate to a profit sharing plan that includes the 401(k) feature in it.

You cannot terminate a plan retroactive to a date in the previous plan year. The issue to know about is the section 412 funding requirement that goes with a MPPP. You indicated you're fine with making the 2008 contribution. That's good, because at this point it's required. But you can likely avoid having the 2009 funding kick in by signing your termination resolution no later than December 30. You should be able to execute the resolution anytime up to that point and have the termination be effective back to 1/1/09.

Before moving the money from a terminated plan, be sure to adopt any amendments Vanguard might have for a terminating plan. Often, required new law provisions are effective in operation a couple of years ahead of the actual deadline date for written adoption. But when you're terminating the plan, you don't get that 2 year interval.

If you terminate a plan in the final sense of the word (which is normally the date the last dollar exits the trust & there are no receivables) on any date in August, your final 5500-EZ for the short plan year 2009 is due at the end of the 7th month following. In the example using August, that's a March 31 due date. Be sure to indicate "final return" in addition to "short plan year." And be sure to show 0 people (if asked) and 0 dollars in the plan as of the plan year end. Your written resolution to terminate is a 'proposed termination.'

Presumably you recently filed your 2008 returns, and that's what prompted your renewed inquiry. I'm assuming the plans are calendar year plans. If so and if you haven't filed the 5500-EZ's for 2008 yet, you have until 10/15 based on your taxable return's extension.

Favorable determination letters aren't mandatory. You might want to look at my comments on FDLs from a few days ago.

You're probably aware of the increase in the 5500-EZ filing threshold.  If you decide to keep one plan active, you need not file if assets for it are <$250,000 as of the end of the plan year.


BobNN (talk|edits) said:

13 August 2010
I have a client in a similar position - closing a Money Purchase Plan. The slight variation here is that the custodian is a large insurance company and the investment vehicle is a variable annuity. The insurance company simply changed the titling on the account, dropping the MPP F/B/O, and have marked it as a Former Pension. They have also said that no 1099-R will be issued. Can this possibly be correct?

Marcilio (talk|edits) said:

16 August 2010
It sounds like they are treating it as a frozen plan and retaining the assets in it. I'm not sure of the filing requirements when all the assets are in an insurance product, but I am sure that you can get clarification from the insurance company plan administration department (although sometimes you have to be persistent).

Marty1970 (talk|edits) said:

17 August 2010
If the plan is closing, the assets should be distributed 'as soon as administratively feasible'; otherwise it's an ongoing plan. See Rev. Rul. 89-87. There needs to be a 1099-R showing the distribution, whether that be a direct rollover to an IRA or a taxable distribution. Formal termination procedures need to be done, including plan amendment updates, resolution to terminate, spousal consent to distribution, Final 5500 series return filing, et al.

If the plan is frozen, it needs to keep meeting many of the requirements of an ongoing plan. The IRS stopped issuing determination letters for frozen plans many years ago.

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