SEP contribution to employee’s traditional IRA ?
I am a small business owner that provides IRA contributions to three employees thru a SEP. I have another employee (#4) that will become eligible for a contribution for 2007 (three years out of five rule.) When I talked to him about this, he said that he would like the SEP contribution to go to his already-set-up traditional IRA which he has had for many years rather than set up a new IRA for him with the company that handles the other three accounts. He says that he is doing this with another employer (he is part time) also thru a SEP. He will be well under the contribution ceiling. It makes no difference to me — I just write a check to Fidelity instead of Amerus. But is this kind of contribution legal? I thought that I had run all contributions thru the same plan. Of course, I heard that from the company that administers the current (annuity) plan. #4 doesn’t want an annuity. Thanks for any enlightenment or comments.
Permalink Submitted by Denise Appleby on Sat, 2007-10-06 11:07
If you are using the IRS model Form 5305 SEP, then it is permissible to do what the employer requests. The SEP contribution can be made to a traditional IRA with any financial institution that accepts SEP contributions. If the account is not already registered as SEP IRA, the financial institution may want a copy of your SEP agreement on file. But , if he is already receiving SEP contributions to the account, then that should not be an issue.
If you are using a prototype or individually-designed SEP, then the SEP agreement should be consulted to determine if there are any restrictions on contributions under the plan being made elsewhere.
Note: Even if the financial institution’s name is on the SEP form, it could still be a 5305- IRS model SEP. Many financial institutions simply put their logo on the IRS’s form, but that doe change the document in any other way. If you are unsure, check the top of the form to see if it says 5305-SEP.
See http://retirementdictionary.com/articles-sep.htm for more