SEP IRA question
If I open a SEP and contribute to the plan and a couple years down the road I decide to hire an employee, can I set up the plan so the employees have a specific wait before they are eligible?
If so what are the eligibility limits?
I could not locate any information on this.
Thank you.
Permalink Submitted by Denise Appleby on Tue, 2007-09-18 23:19
Yes. The SEP can be amended so that employees must meet certain eligibility requirements in order to participate in the plan and receive contributions.
The longest eligibility period is ‘three years ,preceding the year for which the contribution is being made’. For this purpose, if an employee works one day during the year, he/she is considered to have worked one-full year.
Caution: If you establish the SEP this year, with immediately eligibility …and you hire employees two years later, you can adopt the three year requirement with you still being eligible, only if the SEP document allows you to adopt such provisions.
For example:
You adopt the SEP for 2007 , and there are no age , service or income limitations. So you are immediately eligible to participate.
In 2009, you hire employees and amend the SEP to require a three year service requirement. However, you would not meet the service requirement for 2009, because you have worked only two years preceding 2009. However, if your SEP document includes provision that allows you to waive the eligibility requirements for employees that were with company when it started- you could select those provisions so that you would be eligible, regardless of the number of years-of-service you accumulated with the company
Information on SEP IRAs available at http://www.retirementdictionary.com/articles-sep.htm
Permalink Submitted by Chris Dorsett on Thu, 2007-09-20 15:45
Thank you very much.
Exactly what I was looking for.
I really appreciate the help.
Chris
Permalink Submitted by [email protected] on Fri, 2007-09-28 19:09
What if you are a sole proprietor LLC that has been in business for only 2 years?You pay your two employees on W2’s, but claim your profit on Schedule C. Now you want to open a SEP and pay into it yourself. Your employees have only been on board for 1 year. Can you exclude them from eligibility and still make a contribution for yourself?
Michael Terry
Permalink Submitted by Denise Appleby on Sat, 2007-09-29 08:52
Generally speaking- yes….if the business owner has met the eligibility requirements, but the employees have not.