Yes, you can wait if the 3 of 5 year rule is adopted by the plan. The owner must also comply, however a less restrictive provision may be adopted until the owner qualifies and then the plan can adopt the 3 of 5 rule. From the IRS site:

What is the 3-of-5 rule?The 3-of-5 eligibility rule means you must include any employee in your plan who has worked for you in any 3 of the last 5 years (as long as the employee has satisfied the other plan eligibility requirements). This is the most restrictive eligibility requirement allowable. You can choose to use less restrictive participation rules in your plan, such as allowing employees to participate immediately after they start work or after a shorter period of employment (for example, after working for only 1 year).If you use the 3-of-5 rule, you must count any work, no matter how little, in each of the prior 5 years. Use plan years (often the calendar year), not years based on the date the employee started working for you.Example: Your SEP plan uses the 3-of-5 eligibility rule, uses a calendar year and has no age or compensation requirements. To be eligible for a contribution for 2014, an employee must have worked for you for any length of time in any 3 years in the 5-year period from 2009 to 2013. An employee who worked for you for two months in 2009, 2012 and 2013 must share in the SEP contribution made for 2014.If you didn’t include an employee who worked for you in 3 out of the last 5 years, or if you didn’t follow your SEP plan’s participation requirements, find out how you can correct this mistake.

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Permalink Submitted by Robert Taylor on Wed, 2014-10-15 13:12

 Good information– but it raised an important question: So an owner who had no employees when he launched his business but was setting aside SEP money each year has, by default, assumed a less restrictive provision since he is saving funds from day 1. Would that stance carry over to each new employee so they, by default, also fall under the “day 1” contribution rules?  The above explanation seems to indicate that ALL individuals fall under the same rules, so if the employees wait 3 years so does the owner. Is this true? My real life situation is that two partners have been contributing to their SEP’s based on a business that they founded 4 years ago with no other employees until 2014 when they began to hire. Their CPA wonders if they can avoid paying anyone a SEP contribution for 3 years while they continue to contribute to their SEP but that raised the above point– if the owners allowed themselves to save from day 1 wouldn’t that force them to contribute for the employees immediately? Otherwise, they plan to institute a 401k but wanted to wait until 2015 to do so. 

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