A: As of 2002, you may indeed roll your SAR-SEP into a qualified 401(k) plan, thanks to the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). The law permits rollovers between most qualified pension plans, IRAs (Individual Retirement Accounts), 403(b)s, and 457 Plans, according to pension administrator and CPA
Mark Swedelson, of Goldberg, Swedelson & Associates in Encino, Calif.
Keep in mind, however, that while you may move the funds from your own SAR-SEP, you cannot insist that your employees follow suit. "Once a company funds an IRA -- any IRA -- the money belongs to the participant," Swedelson says. "The only person able to transfer an IRA is the owner of that IRA. An employer generally cannot force
participants to roll their funds from a SAR-SEP into the company's 401(k) plan."
PERSUASIVE ARGUMENTS. SIMPLE plans replaced SAR-SEPS, which are no longer available to companies unless they were established on or before Dec. 31, 1996. If a company is cash-strapped, Swedelson says, then a SIMPLE IRA is generally the least expensive retirement vehicle. "The contribution requirements are usually less than a 401(k) plan and there are
virtually no administrative or reporting expenses," he says.
If you are still weighing your decision to go from SAR-SEP to 401(k), or you hope to persuade your employees to roll their funds over, there are several good arguments for doing so, Swedelson says:
Pension plans may offer the possibility of greater investment opportunities
Participants can borrow from a 401(k), where they cannot
borrow from an IRA
The opportunity to put all your retirement assets in one institution simplifies record-keeping and reduces the number of statements you will receive from various IRA accounts
A 1992 U.S. Supreme Court decision (Patterson v. Shumate) affords qualified plans, like 401(k)s, the greatest protection against creditors, and
Generally, a company, its owners and its employees can contribute more to a 401(k) than they could contribute to a SAR-SEP. Have a question about running your business? Ask our small-business experts. Send us an e-mail at email@example.com, or write to Smart Answers, BW Online, 46th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.