SEP Eligibility - Dumb Question

[bzorc]

Employer who has a SEP for himself hired an employee in 2016. Employee works throughout 2016, 2017 and 2018. Question is whether the employee is eligible for the SEP for 2018. I think yes, since they have worked 3 out of the last 5 years (3 of 3 here). I have someone telling me that they are not eligible until 2019.

Any opinions?  Thanks for any replies.

 

[PensionPro]

2019.  It is 3 out of 5 preceding years.  An employer may use less restrictive provisions, so check plan documents.  Here is an IRS example.

Quote

Employer X maintains a calendar year SEP. The eligibility requirements under the SEP are: an employee must perform service in at least three of the immediately preceding five years, reach age 21 and earn the minimum amount of compensation during the current year. Bob worked for Employer X during his summer breaks from school in 2013, 2014 and 2015, but never more than 34 days in any year. In July 2016, Bob turned 21. In August 2016, Bob began working for Employer X on a full-time basis, earning $30,000 in 2016. Bob is an eligible employee in 2016 because he has met the minimum age requirement, has worked for Employer X in three of the five preceding years and has met the minimum compensation requirement for 2016.

 

[bzorc]

Thank you! I don't deal with SEP's that often, and had forgotten the "preceding" portion of years.

[ETA Consulting LLC]

10 hours ago, bzorc said:

 3 out of the last 5 years

 

10 hours ago, PensionPro said:

 3 out of 5 preceding years.  

It's the minor details that often get missed 

[Bird]

19 hours ago, PensionPro said:

An employer may use less restrictive provisions, so check plan documents.

Important point here, make sure the SEP doc says "3" and not "2" - or "1" - or "0"