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IRS.gov Website
Publication 560
taxmap/pubs/p560-002.htm#en_us_publink10008816

Chapter 2
Simplified Employee
Pensions (SEPs)(p5)


taxmap/pubs/p560-002.htm#TXMP2970724d

Useful items

You may want to see:


Publication
 590 Individual Retirement Arrangements (IRAs)
 3998 Choosing A Retirement Solution for Your Small Business
 4285 SEP Checklist
 4286 SARSEP Checklist
 4333 SEP Retirement Plans for Small Businesses
 4336 SARSEP for Small Businesses
 4407 SARSEP—Key Issues and Assistance
Forms (and Instructions)
 W-2: Wage and Tax Statement
 1040: U.S. Individual Income Tax Return
 5305-SEP : Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement
 5305A-SEP : Salary Reduction Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement
 8880: Credit for Qualified Retirement Savings Contributions
 8881: Credit for Small Employer Pension Plan Startup Costs
A SEP is a written plan that allows you to make contributions toward your own retirement and your employees' retirement without getting involved in a more complex qualified plan.
Under a SEP, you make contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. A SEP-IRA is owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained.
SEP-IRAs are set up for, at a minimum, each eligible employee (defined below). A SEP-IRA may have to be set up for a leased employee (defined in chapter 1), but does not need to be set up for excludable employees (defined later).
taxmap/pubs/p560-002.htm#en_us_publink10008817

Eligible employee.(p5)

rule
An eligible employee is an individual who meets all the following requirements.
Deposit
You can use less restrictive participation requirements than those listed, but not more restrictive ones.
taxmap/pubs/p560-002.htm#en_us_publink10008819

Excludable employees.(p5)

rule
The following employees can be excluded from coverage under a SEP.
taxmap/pubs/p560-002.htm#en_us_publink10008820

Setting Up a SEP(p5)

rule
There are three basic steps in setting up a SEP.
  1. You must execute a formal written agreement to provide benefits to all eligible employees.
  2. You must give each eligible employee certain information about the SEP.
  3. A SEP-IRA must be set up by or for each eligible employee.
Deposit
Many financial institutions will help you set up a SEP.
taxmap/pubs/p560-002.htm#en_us_publink10008822

Formal written agreement.(p6)

rule
You must execute a formal written agreement to provide benefits to all eligible employees under a SEP. You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. However, see When not to use Form 5305-SEP, below.
If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determination letter is required. Keep the original form. Do not file it with the IRS. Also, using Form 5305-SEP will usually relieve you from filing annual retirement plan information returns with the IRS and the Department of Labor. See the Form 5305-SEP instructions for details. If you choose not to use Form 5305-SEP, you should seek professional advice in adopting a SEP.
taxmap/pubs/p560-002.htm#en_us_publink10008823
When not to use Form 5305-SEP.(p6)
You cannot use Form 5305-SEP if any of the following apply.
  1. You currently maintain any other qualified retirement plan other than another SEP.
  2. You have any eligible employees for whom IRAs have not been set up.
  3. You use the services of leased employees, who are not your common-law employees (as described in chapter 1).
  4. You are a member of any of the following unless all eligible employees of all the members of these groups, trades, or businesses participate under the SEP.
    1. An affiliated service group described in section 414(m).
    2. A controlled group of corporations described in section 414(b).
    3. Trades or businesses under common control described in section 414(c).
  5. You do not pay the cost of the SEP contributions.
taxmap/pubs/p560-002.htm#en_us_publink10008824

Information you must give to employees.(p6)

rule
You must give each eligible employee a copy of Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. An IRS model SEP is not considered adopted until you give each employee this information.
taxmap/pubs/p560-002.htm#en_us_publink10008825

Setting up the employee's SEP-IRA.(p6)

rule
A SEP-IRA must be set up by or for each eligible employee. SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. You send SEP contributions to the financial institution where the SEP-IRA is maintained.
taxmap/pubs/p560-002.htm#en_us_publink10008826

Deadline for setting up a SEP.(p6)

rule
You can set up a SEP for any year as late as the due date (including extensions) of your income tax return for that year.
taxmap/pubs/p560-002.htm#en_us_publink10008827

Credit for startup costs.(p6)

rule
You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP that first became effective in 2013. For more information, see Credit for startup costs under Reminders, earlier.