SEP IRA for deceased individual
Hello:
I am a bit confused about the IRS guidance vs each custodian’s ability to make policy on this situation:
A business owner wants to open a SEP for 2012 and can still do so. He had an employee, who worked for him for 15 years and died in 2012. If he opens a SEP for 2012 he can not exclude this person. A contribution for the deceasesd must be made. How is an account opened for this person? Can the custodian say “No” or is there an overall IRS requirement that forces the custodian to find a way to open and fund this SEP.
Thanks.
Pko
Permalink Submitted by Alan - IRA critic on Fri, 2013-01-25 18:15
Pko,I cannot locate any specific guidance on HOW this is to be done, only that the contribution must be made for the otherwise eligible deceased employee. Perhaps the IRS thinks that there is an existing SEP account for the decedent, but this would of course become an inherited IRA on the DOD. When there is no existing SEP account, the custodian is particularly exposed in determining who the beneficiary is for any inherited SEP IRA they would open, presumably with cooperation of the executor. The safest decision for the custodian would be to allow their plan default beneficiary provisions to determine the beneficiary, most likely the estate. There does not appear to be other options, such as a substitute cash payment to the estate which would take the custodian out of the loop.