SEP IRA Rules
I’m inheriting a client that has a SEP for his employees. The SEP was opened at our firm some time back, to replace a profit sharing at another firm. This was done on the advice of his accountant. One of the employees left and the owner is inquiring about liquidating that employees assets and dividing them among the remaining employees. I explained that, although that is a procedure that is documented in his old profit sharing plan document, it is not available in the SEP. Also, that the contributions made on the behalf of the terminated employee belong to that employee. Evidently, his accountant is telling him otherwise. I would appreciate confirmation either way. Thanks
Permalink Submitted by Martin Helmer on Sat, 2010-09-25 16:46
You are correct. Section 408(k) begins by stating a SEP is an IRA. Section 408(a)(4) states an IRA is nonforfeitable.
Contributions must be made for terminated employees if they otherwise qualify.
Permalink Submitted by Jose Morales on Mon, 2010-09-27 17:41
Yes, you are correct. Once the money is deposited into the employee’s IRA it belongs to the employee and cannot be taken back by the employer. Also, the employer must make the appropriate contribution to the terminated employee’s SEP if they will be making SEP contributions for any eligible employee for this tax year.