One SEP for owner and another SEP for employees?

[Guest DaveHead]

Can a small business have one SEP for the owner at, say 20%, and another SEP for the employees, at say 10%? Either way, yes or no, can anyone provide a link to a document from an authoritative source? (I can just see myself in an IRS audit - "Well someone on the internet told me...")

Thanks in advance

[ETA Consulting LLC]

No. When you implement a SEP, you would use Form 5305. When you look at the language on the form, you will not see the flexibility to exclude employees on the sole basis that they are not owners. Additionally, there is no flexibility to exclude the owner.

When you desire this type of differentiation on the level of contributions, you're looking a full qualified plan. For instance, you can implement a safe harbor 401(k) with a 3% Safe Harbor to your employees. This will give you the same 3% employer contribution plus a free-ride on the $18,000 in elective deferrals.

I'm attempting not to delve too far into the various plan designs, but to make the point that SEPs offer very little or no flexibility when attempting to offer different contribution levels to different groups of employees.

Good Luck!

[Guest DaveHead]

After reading form 5305, I see the section on "Excludable employees." which is very narrow.

Thanks again

[ETA Consulting LLC]

Exactly. Those are your only allowable exclusions.

Good Luck!