Sep Contribution for Deceased Employee
Is there any guidance that addresses a situation where an employee dies before the employer can make his SEP contribution?
In this case a fiscal year c-corporation has calculated a SEP contribution for an employee that died last April . Should any of the SEP accrual be allocated to the deceased employee? If so, how is that actually accomplished if the employee’s SEP account has already been closed and employee’s estate has also been closed.
Permalink Submitted by Alan - IRA critic on Wed, 2017-08-30 17:03
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. Perhaps the former SEP custodian would be willing to open an inherited SEP IRA for just a day, with the understanding that the legally required SEP contribution would be made, then immediately distributed to the beneficiary if the custodian thinks the former beneficiary should also apply to the inherited SEP, but if the custodian requires that the estate be the beneficiary, perhaps they would allow the executor to assign the inherited SEP to the applicable estate beneficiary and the account would be distributed to that individual. Estate would not be re opened. The main challenge is to get a custodian to open an inherited SEP to receive the contribution. Bypassing the SEP account and just paying the contribution to the executor directed party would be easy and equitable except that the contribution must be run through a SEP IRA and a 1099R issued by the SEP custodian for the distribution.