Eligibility
All employees who have worked for the company in three out of the immediately preceding five years, are at least 21 years
of age, and earned at least $750 during the year are eligible. (The minimum earning may
change based on tax law. See more info
here.)
Contributions
Contributions are made by the employer and are based on a percentage of the employee's salary. The contribution percentage each year will be determined by management. All eligible employees must, according to IRS rules, receive the same percentage of compensation. Compensation will be announced to eligible employees in December of the applicable tax
year.
Employer is not legally required to contribute every year, but when a contribution is made, Employer must contribute to the SEP-IRAs of all eligible employees who performed services during the year for which the contributions are made, even employees who die or terminate employment before the contributions are made.
Compensation used to determine SEP contributions generally includes: wages, salaries, overtime, bonuses, vacation and sick pay, and other remuneration from the employer for services performed.
Employee Responsibilities
Employees are responsible for opening their own SEP IRA accounts and providing the account number to the employer. You may open the account at an institution of your choice. One option is
Fidelity. They have no account fees, and they have an expansive list of both Fidelity and non-Fidelity mutual funds to invest in.
The employee must
inform management of the institution and the account number where the SEP-IRA is held by December 1st of the applicable tax year so that contributions can be made directly into the employee's
account.
Employees are responsible for investing their own SEP IRAs.
The employer has no further responsibility after making the contribution.
The Company must make the SEP-IRA contributions by each year’s corporate federal income tax due date, on or around March 15th of the year following the contribution year. If the Company has a tax extension, the contributions must be made by the end of the extension period. If the deadline is missed, SEP plan contributions cannot be deducted from that year’s return. You can deduct the contributions on the following year’s tax return.
Rules for Withdrawing Funds
The rules for withdrawal are the same as for a traditional IRA.
Assets in the account can be withdrawn at any time, however a 10% early withdrawal penalty may apply if you are under the age of 59 ½, unless one of the penalty waivers applies (see IRS Publication 590-B). Minimum distributions are required starting at age 73.
Account Maintenance and Reporting
Certain employee notifications are required of the Employer, but there is no IRS reporting required.
IRS form 3505-SEP has been filled out and is attached to this article.
If an eligible employee chooses not to open a SEP-IRA account, the company is legally obligated to open an account on the employee's behalf.
SEP- IRA contributions are not included on Form W-2.
Other Considerations
Having a SEP IRA doesn't affect your eligibility to fund a Roth IRA or a traditional IRA.
Employer contributions to your SEP-IRA are tax-deferred. Taxes are withheld at the time the employee withdraws funds from their retirement plan.
To Enter Employer SEP-IRA Contributions in QB
Expense Account: SEP-IRA Employer Contributions
Payee: Fidelity Investments (2024) or National Financial Services (2023) (as instructed by Fidelity employee)
Description: [employee name] [year] SEP IRA contribution