SEP IRA Eligibility
Employer closed a company in 2009 and started a new company the following year in 2010. Some of his employees who worked for him in the previous company are now working for him in the new company. Employer has started a SEP IRA for his new company and has selected the most restrictive eligibility option (3 out of 5 years).
1. Do the years employees work at old company apply the their eligibility for the SEP at the new company?
2. Is the employer subject to the same eligibility requirements as the employees? In other words, when he starts the plan can he make a contribution for himself but require everyone to be with him 3 out of 5 years to be eligible for a contribution?
3. What years does the 3 out of 5 entail? Does the current tax year count as one of those 3 years? For example, if an employee worked 2011, 2012 and 2013 does that mean the employer has to make a contribution for the 2013 tax year?
Many thanks in advance for your help.
Permalink Submitted by mk foss on Thu, 2013-09-05 16:29
The employer cannot have a more favorable requirement than the others. If he wants to be covered under the new company plan, he’d have to allow for employment in the old company to count as employment in the new company.
Permalink Submitted by Jack Thomas on Thu, 2013-09-05 16:51
So the employer is subject to the same eligibility requirements as the employees? What about the example of a brand new company in 2013 where the employer says employees have to be with him 3 out of 5 years (which I take that to mean employees are eligble in 3 years)…the employer himself also has to wait 3 years to enter the plan?
Permalink Submitted by mk foss on Thu, 2013-09-05 20:52
When there’s a 3 out of 5 requirement, the employer can participate immediately if the plan counts past service for a predecessor company. If that’s true for the employer, it’s true for the employees. No discrimination in a SEP or most retirement plans.