Amending SEP plan
If an employer establishes a SEP plan by completing form 5304 initially to require a 1 year waiting period for eligibility to participate in the SEP plan, can the employer then change the eligibility to 2 years or 3 years in a subsequent plan year by completing / amending form 5304? According to the SEP document instructions: “the administrator of the SEP must furnish each participant within 30 days of the effective date of any amendment to the SEP. a copy of the amendment and written explanation of its effects”.
Is the form 5304-SEP Rev. December 2004 the most recent 5304 form?
Permalink Submitted by Jose Morales on Fri, 2013-07-19 16:11
The form you are looking for is 5305-SEP. Here is the IRS FAQ for SEP plans, which includes links to the most current form and instructions: http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-SEPs-Establish-a-SEP
Permalink Submitted by Kevin Vasilik on Tue, 2013-07-23 00:19
Yes, I did mean Form 5305-SEP from the beginning, just hit the wrong key. The question I have is still….. if an employer establishes a SEP plan this year and puts in a one year waiting period to participate (because the company was only started one year ago – so we want the owner to be able to Participate)…. there are no other eligibles this year. But next year, can the owner changes the eligibility requirement to 2 years which will thereby require an employee who was hired this year to be excluded for another year? In other words, since the SEP document allows for amendments, we are assuming that the employer can amend the document each year up until he achieves a 3 year waiting period which is the maximum.Again, just to be clear, the reason why the employer would not use a 3 year waiting period from the start is because the employer has only been working for the business for 1 year and there are no other employees who have been in the business for one year.
Permalink Submitted by BruceM on Sat, 2013-07-20 17:36
There really isn’t a 5304 SEP. As mentioned, there is a 5305 SEP (the IRS model SEP) and there is a 5304 SIMPLE.SEP IRAs cannot restrict participation on years of work. Any employee who the employer has compensated in any 3 of the most previous 5 years, and will make at least $550 in the year the SEP is offered, must be a plan participant. The only other allowable exclusion is for those employees not yet 21. And note….you cannot exclude making a contribution simply because the employee no longer works for you for whatever reason.If you have inadvertantly excluded non-excludable employees in the past, you will have to correct it. The IRS has come up with a nice little “how-to-correct-your-SEP-IRA-booboos” worksheet that you may want to take a look at.http://www.irs.gov/Retirement-Plans/SEP-Fix-It-Guide—The-plan-excluded-eligible-employees-from-participating-in-the-SEPBruceM