A Simplified Employee Pension (SEP) plan can cover employees as well as self-employed individuals. In general, an employee is considered eligible to participate if they meet all of the following requirements:
- Are at least 21 years old
- Have worked for the employer during at least 3 of the last 5 years
- Received at least $750 in compensation from the employer during the year
Employers may choose to make participation requirements less restrictive than these rules, but they generally cannot make them more restrictive.
Who Can Be Excluded From a SEP or SARSEP?
Even if a SEP plan is offered, an employer may exclude certain employees, including:
- Employees covered by a collective bargaining (union) agreement if retirement benefits were negotiated in good faith between the union and employer
- Nonresident aliens who do not receive U.S. wages, salaries, or other compensation for services performed for the employer in the United States
What to Know About SEP Eligibility
SEP plans are designed to be simple for small businesses and self-employed individuals. If you're eligible, your employer can make contributions to a SEP-IRA on your behalf. Unlike a traditional IRA, employees generally do not make SEP contributions themselves; contributions are made by the employer.
Need Help Filing?
If you're entering SEP information in your tax return, make sure your compensation and employer contribution amounts are reported accurately. Keeping good records can help you avoid delays and ensure you receive any retirement-related tax benefits you're entitled to.
Additional Information
- How much can I contribute to an SEP?
- Can I rollover funds into or out of my SEP retirement account?
- What is a Simplified Employee Pension Plan (SEP)?