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SEP eligibility????


Guest TaxBill
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Guest TaxBill

Situation:

Employer sets eligibility at 1 year. The employer hired a new employee on October 1st, 2001. It is now Oct 2, 2002. The employee is eligible to participate in the SEP. As the employer I made a SEP employer contribution on behalf of my other two eligible employees who have been with the company for awhile, do I have to make a contribution to the third employee for the year 2002. Wouldn't the entry date for the new employee start in January of 2003? Is there any ruling somewhere on this????

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A contribution must be made for the third employee beginning plan year 2002.

The requirements are number of stated years of the five preceding years.

In your example, the employer performed services 1 year of the five preceding years.

For a SEP IRA, the year of service is nay period “however short”. This means the technically, there is no entry date. However, practically speaking, the entry date is the first day of the plan year- January 1 for calendar year plans.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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Yes, performing service, however short, is service. With a one-year service requirment, the employee commences participation on the first day of the following plan year, generally January 1. [iRC Sec 401(k)(2)(B)]

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