When does an employee become eligible in a SEP

[Guest gjccpa]

I have an established SEP with a 1 year waiting period.

Employee X started employment on 01/15/01, the plan year end is 12/31/01.

Does the employee become eligible on 01/16/02?

What is confusing me is the plan statement saying, "An employee is eligible if at least 21, has worked for your business during any one of the past five years, and earned at least $450"

At 12/31/01 she had not worked for me at least 1 year, so no contributions will be made for 2001.

For 2002, if the SEp contribution will be 10%, is she eligible to receive 10% of comp for all wages or only those from 1/16/02 to year end.

She is a valuable employee and I just want to make sure I get it right.

[Appleby]

For a SEP IRA purposes, the one-year period is defined as any period, however short. This means that if an employee performed services for, say one day of the year, that constitutes one year.

Further, if you have a one-year eligibility period, this one-year is one of the “preceding three years”. If you are making a contribution for year 2001, this employee will not be eligible as she did not perform services for any period during the preceding three years which are years 2000,1999 and 1998.

She will however, be eligible to receive employer contributions for year 2002. The 10 percent contribution for 2002 must be based on her total 2002 compensation.