You can combine a SEP with a cash balance plan but there are some considerations: (1) it has to be a non-model SEP and NOT subject to IRS form 5305; and (2) contributions under the SEP are limited to 6% for a non-PBGC covered plan.
In practice, we have found that most SEPs are model plans and are not allowed to be combined with a defined benefit plan. So if you are considering setting up a defined benefit plan and you currently have a SEP, make sure not to fund the SEP yet.
If you have already funded a SEP and want to set up a defined benefit plan, make sure you talk with us. You may be able to have those funds reclassified and disbursed back to you without incurring taxable income or penalties.
The following companies below have non-model SEPs:
- Charles Schwab
- Merrill Lynch
- Morgan Stanley
- American Funds
Before you proceed, make sure that you confirm with the above companies that they are non-model SEPs and NOT subject to Form 5305.
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