SEP IRA plan termination and adoption of SIMPLE IRA Plan with potential to switch back to SEP

Submitted by Joseph Schwarz on Thu, 2023-12-21 01:49

What would be the considerations, other than extensive administration work, for the following scenario.
-Client currently has a SEP and no employees
-Client is considering termination of the SEP and adoption of a SIMPLE given the expectation for the addition of future W2 employees in the coming year.
-Client is wondering if a transition back to SEP could be possible in a future year, with an understanding that future W2 employees would be participants in the SEP.
Any guidance or considerations would be helpful as the client is working through this with the CPA and is curious of any issues with the plan.



Submitted by Alan - IRA critic on Thu, 2023-12-21 02:06

  • Why go to the hassle of switching plans?  The SEP is preferable in almost all situations, the exception being if the employees will earn relatively more than the client compared to the average small business. The following link provides a great comparison of these 2 plans, but may be behind a firewall if you do not have a morningstar account:
  • SEP vs. SIMPLE IRAs: 5 Key Suitability Questions for Small Businesses | Morningstar

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