hrhat

Thank you Bird. Yes I meant contribution. This isn't my area of "expertise" and I need to pay more attention to the terminology I use...

I"m reading through this thread which has a lot of grey area. We have a SEP that we would like to amend from the 1 year service requirement to 3 years. An employee that received a distribution in 2014 would become ineligible in 2015. Thought it would be ok based on these Q&A's on IRS.gov website: "I’d like to establish a SEP plan that allows me to participate immediately. Can I establish different SEP plan eligibility requirements for future employees? Yes. You can initially establish your SEP plan so that you are immediately eligible to participate in the plan. Later, you can amend the plan to have more restrictive eligibility requirements, but you must also meet the new eligibility requirements to continue your participation in the plan. 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 2015, an employee must have worked for you for any length of time in any 3 years in the 5-year period from 2010 to 2014. An employee who worked for you for two months in 2010, 2013 and 2014 must share in the SEP contribution made for 2015. 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." Does the red print suggest that it is ok to do this and that an employee could become ineligible?