PS Keogh to SEP IRA
If I have Keogh Plan that I have not made contributions to in 10 years but have been filing a 5500 for every year, how do I terminate that plan and start a new SEP IRA? Can I do this in the same calendar year? What are my options for funds in the terminated Keogh?
Permalink Submitted by John Peterson on Mon, 2014-02-03 22:18
Roll $ from Keogh to IRA (I assume Keogh plan documents are current).File final 5500 for old Keogh.Set up SEP as the basis for future contributions (even 2013 if desired) and make contributions to same IRA you rolled Keogh to.
Permalink Submitted by Brittany Koch on Mon, 2014-02-03 22:24
Can I terminate keogh plan (if so…how) and then use form 5305 to establish new SEP IRA. Then fund that SEP and rollover Keogh funds to SEP or IRA. Do I need to open an IRA? Why do you recommend I make my contributions to the Rollover IRA and not the SEP?
Permalink Submitted by mk foss on Tue, 2014-02-04 01:05
You terminate the Keogh by rolling it over and then filing a final Form 5500. You can open a SEP and roll the Keogh there instead of establishing a separate rollover IRA. When using Form 5305 be careful in determining who is eligible. You don’t want to require 3 years of employment for those covered by the Keogh plan. Some sort of written resolution stating that you’ve terminated the Keogh plan would be a nice touch also.
Permalink Submitted by Martin Helmer on Wed, 2014-02-05 03:37
Before doing any direct rollover, I would make sure all required amendments have been adopted. The plan document provider often will have information for terminating the plan. People often overlook amendments, especially in view of making no contributions for 10 years. They mistakenly think the amendments have no relevance. True, if the situation involves only the owner, there’s no worry about committing discrimination. But the IRS often asks about amendments on the Form 5500.A resolution stating the proposed date of termination is required; the date can’t be earlier than the first day of the plan year of adoption of the resolution. If the plan offers a life annuity as an optional or regular form of distribution, plan participant and spouse must sign annuity waiver in favor of the direct rollover.IRS has optional process, form 5310 filing, to make sure everything’s all right before doing rollover. This is a costly and time consuming process but it avoids worry the IRS will audit the final 5500, find something wrong, and threaten to invalidate the rollover. Other employees weren’t mentioned in OP’s facts. But even if others were in the Keogh, OP can still require 3 years of service (includes predecessor incarnations of the employer, if any). Having a SEP plan means you need a SEP-IRA account to receive contributions. THe account must be able to do double duty and accept TIRA contributions too. Make sure custodian knows exactly what year and what type of contribution is being made.Form 5305-SEP says it can’t be used if you currently maintain another plan, which OP does until such point the last dollar from the Keogh leaves the plan. Given the situation (mainly the noncontributing status of the Keogh), I wouldn’t expect a problem in having the 2 plans exist simultaneously but briefly.