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401k closed, can I open SEP?

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  • 401k closed, can I open SEP?

    Earlier this year, I closed my practice, let my Employees go and terminated our practice's 401k plan. I am still receiving insurance payments for services from earlier this year. Can I open a SEP to maximize my retirement contributions for this year?

  • #2
    This is a little tricky, since you had employees with the 401k, but I believe you can now that the business is closed and, along with that, the 401k plan. You cannot have both in place at once, but since you have terminated the 401k and continue to have earned income, you should be able to contribute to a SEP. Note that you won't be able to do a tax-free backdoor Roth, but I presume that you already rolled over your 401k to an IRA, which already negated that option.

    Hopefully @spiritrider will add to the discussion.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Actually - I rolled over my 401k to my TSP plan, but the SEP option would still get me. But I will really only have income for this year, so I'm imagining I could roll the SEP over into my TSP plan down the road and resume the backdoor Roth then.

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      • #4




        Actually – I rolled over my 401k to my TSP plan, but the SEP option would still get me. But I will really only have income for this year, so I’m imagining I could roll the SEP over into my TSP plan down the road and resume the backdoor Roth then.
        Click to expand...


        Ah, then here's what to do if you plan to continue backdoor Roths - contribute to the nondeductible TIRA and convert in 2017, contribute to the SEP in 2018 for 2017, then convert before 12/31/18.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          Your 401k plan is not considered terminated until all distributions are made in full. Make sure you file the final Form 5500 by the last day of the seventh (7th) month following termination.

          The good news is that a SEP IRA is an allowed exception to the "successor plan" rule that would require a one (1) year waiting period before adopting a new plan.

          However, what I am not certain about is, can you adopt a 5305-SEP in the same plan year? If not, you could adopt a prototype SEP IRA plan. The only custodians I am aware of that offer prototype plans are Schwab and Merrill Lynch. So I would either consult with a retirement plan specialist before adopting a 5305-SEP IRA or just open a prototype plan SEP IRA at one of the two custodians. You are going to rollover the assets to the TSP anyways.

          Note: Johanna is the exception to the rule. She strives to know as much as she can about these issues for her clients. Many CPAs and financial planners can handle basic setup and contributions for small business employer retirement plans. However, there are many laws, regulations, guidance, etc... Most of them don't encounter, are unlikely to know and don't really make a concerted effort to learn. If you are going to go the 5305-SEP route, make sure you get a confirmed answer from a knowledgeable professional.

           

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          • #6
            Thanks, @spiritrider! Now if I can just get you to add to the diagnosis for this patient...
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              Thank you spirit rider and Johanna, that is a huge help.

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