SEP IRA
I have a client with a schedule c business who wants to do a SEP for this year. This is the first year he has had the business. He also has an employee that he hired this year as well. Is there anyway to restrict this employee from being eligible? Is the employer (my client) still subject to the 3 year eligibility requirement if that is what I put on the 5305? Or could we say the employee joined the firm after we started the SEP? Any thoughts or where I could find any definitive back up on this because others have told me that the eligibility requirements don’t apply to the person who owns the company.
Thanks,
Jim
Permalink Submitted by Martin Helmer on Thu, 2008-04-10 09:02
The owner is subject to the same eligibility requirements as his employee. You could amend the plan to zero years of eligibility but then both must participate. Since a year of service is gained by merely performing any work at all, that’s one reason there’s no way to define the first year and plan effective date such that the hired person is excluded.
See IRC sec. 408(k)(7)(A) referring to 401(c)(1)—-Self employed person is treated like any other employee. Also relevant is 408(k)(2)—-employer must contribute to the IRA of each eligible employee.