Client is self employed with no employees. He made a contribution to his profit sharing plan about four years ago. He has no plans to use the plan in the future. Now the plan needs to be updated. He would like to roll over the plan balance to his IRA. Generally to do this the plan must be terminated formally rather than simply abandoned. Question: what are the reprecussions of failure to terminate the plan? The plan will be disqualified at some point if not current with the law, but in this case is that a problem? If the plan has no assets, and the entity will not have future plan contributions, why pay to terminate? Must plan be updated before being terminated?
My advice – talk to the pension administrators and find out what needs to be done to terminate the plan and how much it will cost. I also suggested he get an opinion as to what could happen if he simply rolls over the plan assets to an IRA but does not formally terminate the plan. Any insigths here?
Thanks,
Jim