SEP Retirement Plans - United States Department of Labor

for Small SEP Retirement Plans Businesses SEP Retirement Plans for Small Businesses is a joint project of the U.S. Department of Labor’s Employee Benefits Security Administration (DOL/EBSA) and the Internal Revenue Service. To view this and other EBSA publications, visit the agency’s website at: www.dol.gov/ebsa. To order publications, contact us electronically at: www.askebsa.dol.gov. Or call toll free: 866-444-3272. For assistance from a benefits advisor, visit EBSA’s website at www.dol.gov/ebsa and click on “Request Assistance.” Or call toll free: 866-444-3272. SEP Retirement Plans for Small Businesses (IRS Publication 4333) is also available from the Internal Revenue Service at: 800-TAX-FORM (829-3676). (Please indicate catalog number 38507U when ordering.) This publication will be made available in alternative format to persons with disabilities upon

request: Voice phone: (202) 693-8664 TDD: (202) 501-3911 This publication constitutes a small entity compliance guide for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996. It does not constitute legal, accounting, or other professional advice. Looking for an easy and low-cost Employee – An “employee” is not only some- retirement plan? Why not consider one who works for you, but also includes you if you receive compensation from the a SEP? business. In other words, you can contribute Simplified Employee Pension (SEP) plans to a SEP-IRA on your own behalf. The term can provide a significant source of income also includes employees of certain other busi- at retirement by allowing employers to set nesses you and/or your family own and cer- aside money in retirement accounts for them- tain leased employees. selves and their employees. Under a SEP, an employer contributes directly to traditional Eligible Employee – An eligible employee is an individual retirement accounts (SEP-IRAs) employee who: for all employees (including themselves). A SEP does not have the start-up and operating 1. Is at least 21 years of age, and costs of a conventional retirement plan and 2. Has performed service for you in at least 3 allows for a contribution of up to 25 percent of the last 5 years. of each employee’s pay. All eligible employees must participate in the plan, including part-time employees, seasonal Advantages of a SEP employees, and employees who die or termi- nate employment during the year. q Contributions to a SEP are tax deductible and your business pays no taxes on the Your SEP may also cover the following earnings on the investments. employees, but there is no requirement to cover them: q You are not locked into making contribu- tions every year. In fact, you decide each q Employees covered by a union contract; year whether, and how much, to contrib- q Nonresident alien employees who did not ute to your employees’ SEP-IRAs. earn income from you; q Employees who received less than $550 in q Generally, you do not have to file any compensation during the year (subject to documents with the government. cost-of-living adjustments). q Sole proprietors, partnerships, and corpo- Compensation – The term generally includes rations, including S corporations, can set the pay an employee received from you for up SEPs. a year’s work. As the owner/employee, your compensation is the pay you received from...

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