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What You Should Know About IRA-Based Plans
What you should know about: SEP IRA Plans
What you should know about: SIMPLE IRA Plans
What you should know about: SARSEP IRA Plans
What you should know about: Payroll Deduction IRAs

Thank you for attending this session on SEP IRA Plan Options for Small Businesses The information in this session isn’t official guidance. Now, let’s get started.

Our topic today is SEP IRA Plans. What is a SEP IRA plan? The SEP acronym stands for: “Simplified Employee Pension.” These types of plans are easy to set up, easy to maintain, and don’t have any IRS filing requirements.

They allow contributions to be made by the employer only.

Additionally, you can receive a credit for part of the setup costs related to setting up a new SEP IRA.

You can claim a credit of up to $500 a year for 3 years.

Now, let’s look at the requirements for maintaining a SEP IRA to help you decide if this is the right plan for your small business.

What are the filing requirements for a SEP? To set up your SEP IRA Plan, you must complete Form 5305-SEP.

You could also adopt a SEP prototype plan document issued by a financial institution or an individually-designed plan.

You will then need to set up SEP IRA accounts for all employees that are eligible for the SEP.

What filing requirements does a SEP have? There is no requirement that the plan file Form 5500 with the IRS.

Let's talk about SEP plan elibility. What are the eligibility requirements to maintain a SEP? Any employer can maintain this type of plan.

If you adopt a SEP Plan using Form 5305-SEP, you can’t maintain any other retirement plans (except another SEP).

What are the eligibility requirements for employees to participate in the plan?

Employees must be age 21 and have worked for you for 3 of the last 5 years.

They also must earn at least $650 in compensation in tax year 2021 (or $600 for 2019 and 2020). However, you can make the eligibility requirements less restrictive, which would allow more employees to participate.

Next, we’ll look at SEP contributions.

How much can be contributed to a SEP? Only employers can make contributions to a SEP – no employee contributions are allowed.

The contributions are made to each employee’s SEP IRA and are always 100% vested.

What type of employer contribution is required? Unlike a SIMPLE IRA, the SEP IRA doesn’t require employer contributions.

However, if employer contributions are made, they must be made to all eligible employees using the same percentage of compensation.

Contributions can’t be discriminatory. We’ve talked about the types of contributions that can be made to a SIMPLE.

Now, let’s move on to withdrawals.

What are the withdrawal options with a SEP? Employees own their SEP IRAs.

Employees are always 100% vested in employer SEP IRA contributions.

Withdrawals of SEP funds are allowed from the plan at any time and are subject to income tax.

Additionally, the additional tax for withdrawing funds before an employee turns age 59 ½ is typically 10%, unless an exception applies.

What are some of the common errors found in SEP IRA plans?

SEP plan document wasn’t updated for current law Employees of related businesses were excluded from participating Eligible employees were excluded from participating Contributions to participants’ SEP IRAs were miscalculated because the wrong definition of compensation was used Contributions to each participant’s SEP IRA weren't a uniform percentage of the participant’s compensation Contributions to the SEP IRA exceeded the maximum legal limits.

How can you find the common errors found in SEP IRA plan? There is a tool you can use to help you find errors with your SEP IRA.

It’s called the SEP checklist (or Publication 4285). The questions will help you identify problems you may have in operating your SEP.

However, you should be aware that not all plan errors can be identified with this checklist.

What happens if you find errors with your SEP? You can use one of our correction programs to fix your plan.

The self-correction program (or SCP) allows you to fix your plan without contacting the IRS or paying a fee.

Not all errors are available to be corrected using the SCP program.

We also have a voluntary correction program (or VCP) that can be used if your failures can’t be corrected using SCP.

This program provides IRS approval for your corrections but does require you to pay a user fee.

This program isn’t available if the plan is under audit.

What are some additional SEP IRA resources that are available to you?

If you visit our website at www.irs.gov/EP and select “Types of Retirement Plans” and then select “SEP plans,” you’ll find a wealth of helpful information on these types of plans. Also, irs.gov/smallplans is one of our newest webpages that’s geared toward small employers looking to find, maintain or fix a retirement plan.

Also, under additional resources, we have two publications that may benefit you when considering a SEP IRA: Publication 4333, SEP Retirement Plans for Small Businesses, and Publication 3998, Choosing a Retirement Solution for Your Small Business. We also have a page dedicated to SEP IRA operation.

Additionally, you’ll want to check out our SEP IRA Fix-it Guide if you have a SEP plan and find errors with your plan.

As mentioned above, all these resources are available on our webpage at irs.gov/EP.

Please send any questions to us at tege.outreach@irs.gov.

We’ve covered the requirements to maintain a SEP IRA plan, common errors found in these types of plans, how to fix plan errors and some additional resources available to you to setup and operate your SEP IRA.

We hope this session will help you decide if a SEP IRA plan is right for you. Thank you for attending our session.