A simplified employee pension (SEP) is a written plan that allows you to make contributions toward your own retirement (if you are self-employed)
and your employees' retirement without getting involved in a more complex qualified plan.
Under a SEP, you make the 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 later). 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).
Eligible employee.
An eligible employee is an individual who meets all the following requirements.
- Has reached age 21.
- Has worked for you in at least 3 of the last 5 years.
- Has received at least $450 in compensation from you for 2001.
You can use less restrictive participation requirements than those listed, but not more restrictive ones.
Excludable employees.
The following employees can be excluded from coverage under a SEP.
- Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and
you.
- Nonresident alien employees who have received no U.S. source wages, salaries, or other personal services compensation from you. For more
information about nonresident aliens, see Publication 519,
U.S. Tax Guide for Aliens.
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