CPA Ed Zollars <ezollar[at]mindspring.com> wrote:

- quote -

I fully agree with the technical correctness of that point. But,
it nevertheless leaves me uncomfortable (based on the "duck"
test or "smell" test or whatever). I would probably be happier
if the money ended up with a custodian that does NOT
specifically label SEP accounts as such and/or the money is
initially rolled to an "IRA" and later to a "SEP IRA" (if the
custodian requires such a designation).

- quote -

Agreed. But, if the penalty ends up coming out of MY pocket,
then it's the SAME issue to ME !! <g
MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Michael T Wing CPA wrote:

- quote -

Not with the Keogh money, since that didn't go into a SEP
(there is no such thing as a "SEP account" in the IRC,
despite brokerage and fund company terminology <grin> ), but
rather into an IRA. Now, if the SEP isn't a valid one, the
SEP contributions may be excess contributions to an IRA, but
that's a different issue.

- quote -

I don't think that changes the issue in the least--the Keogh
rollover isn't the problem, rather the SEP funding (which
allows the larger contribution into the IRA account) is the
issue. And that risks the excise tax on excess
contributions to an IRA.

--
Ed Zollars, CPA
Phoenix, Arizona

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

CPA Ed Zollars <ezollar[at]mindspring.com> wrote:

- quote -

I think I follow that, but are there one too many
"negatives" in your first sentence? <g
Anyway, the problem that concerns me is not with respect to
the termination of the prior plans per se. As you note,
those plans will nevertheless be left with whatever problems
they had. Let's assume for the sake of discussion that they
had no problems.

My concern is with the creation of a SEP plan in a manner
that appears to violate the "...currently maintain any other
qualified retirement plan..." limitation stated on Form
5305-SEP. The old Keogh (and its termination) might all be
in perfectly good order. But, if an ill tempered agent
decided that the SEP had been improperly started, and ALL
the Keogh money has been rolled into it, wouldn't we be
headed for a MAJOR problem?

Perhaps this problem could be reduced by NOT rolling the
Keogh money into the new SEP, placing it instead in it own
discrete IRA account. However, that kind of flys in the face
of the "simplification" objective that started this quest in
the first place.

I think the safest way to proceed would be to follow Skip's
example of observing a proper year-end cutoff. I would
probably suggest that the 2003 contributions to the Keogh
plan be made PRIOR to the end of 2003 (let's say in
November). Then, in December, notify the trustee that you
are terminating the plan as of 12/31/03. Advise the trustee
to roll over the Keogh funds into a newly created SEP
account on or after 1/1/04. A "final" 5500-EZ for the Keogh
would be filed for 2003.

If, on the other hand, you delay making the 2003 Keogh
contributions until 2004 (as would otherwise be permitted),
and then rolled all of that into a SEP that was started with
respect to plan year 2004, I could see a problem that might
be difficult to explain. For example, you would have to file
a 5500-EZ for 2004 that would "overlap" the plan year of the
SEP.

At the very minimum, I would NOT (on my own advice) want to
try to terminate the Keogh "retroactively," say by deciding
today that it had been terminated as of 12/31/02, especially
if a SEP was to be started for 2003.

MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Michael T Wing CPA wrote:

- quote -

Well, I'm not so sure. After all, if there *is* a problem
it has already taken place and the problem exists--killing
the plan doesn't cause the problem. Rather, the years
aren't closed and the plan can still be challenged--but
then, that's true if you continue to operate it.

So, at least as far as your exposure is concerned, it
wouldn't appear that you haven't changed things by
terminating. However, if you advise the client *not* to
temrinate the plan and a problem develops in the future then
maybe you are responsible <grin> .

- quote -

client to get him/herself to a plan administrator to check
for possible problems *yesterday* <grin> . Because I suspect
if anything goes wrong, the client is going to claim that
he/she relied on you to keep him/her legal.

--
Ed Zollars, CPA
Phoenix, Arizona

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

CPA Ed Zollars <ezollar[at]mindspring.com> wrote:

- quote -

Yeah, but that would be the CLIENT'S doing, not mine. <g> If
*I* tell the client to informally kill the plan, don't I
have more responsibility for that than if I tell the client
nothing?

What's more, if we add all these plans together, the assets
exceed 2 - 3 million bucks. The potential penalties on all
that would more than wipe out MY retirement assets. <g
MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Michael T Wing CPA <mtwingcpa[at]yahoo.com> wrote:
- quote -

coverage. I.e., you can have a Keogh and a SEP-IRA. What you
can't do is setup the SEP using IRS Form 5305-SEP if you also
have a Keogh plan.

I would think, that if you were going to terminate the
Keogh, you could use the Form 5305-SEP to setup the SEP if
you simultaneously transfer the Keogh balance to the SEP
when you create it. (I'm guessing on this one!)

Alan
http://taxtopics.net

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

HW "Skip" Weldon <skip5700[at]yahoo.com> wrote:

- quote -

That's probably what we'll do, assuming that the
trustee/custodian appears to be cooperative (as was Vanguard
in your case). For better or worse, NONE of the plans in
question currently cover "employees" other than the "owner."
That should hopefully simplify things.

However, I still perceive some ~technical~ glitches. For
example, if we decided to kill the Keoghs as of right now
(mid year), what is our circumstance for 2003? Can a SEP
contribution be made for 2003? That would ~sound~ like
simultaneous coverage. And/or if we killed the Keoghs as of
12/31/03, I gather that contributions for tax year 2003
(which might not be actually funded until next summer!)
would still have to be made to the Keoghs, with nothing
contributed to the SEP until, and on behalf of, 2004. (All
comments based on calendar year plans.)

No doubt I'm over thinking this, but my (limited) experience
with qualified plans has taught me that the IRS can ALWAYS
find ~something~ wrong with your implementation if they want
to. <g
MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Michael T Wing CPA <mtwingcpa[at]yahoo.com> wrote:

- quote -

I'm not sure if we are discussing similar situations, but
last year I wound up my old Keogh Profit Sharing and moved
to a SEP. In my case it was relatively easy because I had
been using the Vanguard prototype and administration, and I
merely moved to a Vanguard SEP, transferring all assets in
kind. Vanguard made it easy. (And that's coming from a
paperwork/detail bozo.) I coincided the start of the SEP
plan year with the end of the Keogh year.

I first told Vanguard I was terminating the Keogh. Then I
filled out the SEP app telling them to transfer money in
kind. Then with this year's 5500 I told DOL that the Keogh
was ended.

So far there have been no hitches.

-HW "Skip" Weldon
Columbia, SC

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->