Jump to content

What is compensation for purposes of SEP using Form 5305A-SEP

Recommended Posts

Client has SARSEP and allows employees to defer up to 25% of compensation and client makes annual employer contributions = 4% of compensation.

Client has been determining all contributions based on gross wages.

Client uses model IRS Form 5305A-SEP which to me seems to say the term "compensation" is w-2 wages excluding employer contributions and elective deferrals.

Which means that for purposes of calculating employer contributions means that the 4% should be applied to the employee's wages less elective deferrals.

Anyone have any thoughts?

Link to comment
Share on other sites

  • 1 month later...

SEP contributions should be made according to the SEP agreement (not the SARSEP agreement). It should be noted that compensation for top-heavy purposes must use unreduced compensation regardless of which document is being used.

Consider using a prototype SEP/SARSEP plan document that generally gives the user an option.

See, too, Publication 560, page 4, "Compensation."

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Create New...