A:

It depends. The employee should meet not only the service requirements, but the age and compensation requirements as well. For instance, if your simplified employee pension (SEP) requires employees to be at least 21 years old before becoming eligible to participate in the plan, employees under age 21 would not be eligible to receive an SEP contribution.

In addition, if your plan requires that employees perform service for three of the five preceding years and the employee has met this and the other eligibility requirements, then an SEP contribution must be made to that employee's account for any year that you make a SEP contribution to your account or any other participant's account.

For a detailed explanation on how to determine whether an employee is eligible to receive an SEP contribution, see Establishing An SEP IRA and Plans The Small Employer Can Establish.

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS
  1. Who is eligible to obtain a Simplified Employee Pension (SEP) IRA?

    Learn if an individual may contribute to a Simplified Employee Pension IRA when his or her employer offers a plan and how ... Read Answer >>
  2. How does a Simplified Employee Pension (SEP) plan work?

    Learn how small businesses and their employees benefit from a Simplified Employee Pension, or SEP, IRA, and discover how ... Read Answer >>
  3. Is a 408 (k) the same as a Simplified Employee Pension (SEP)?

    Find out the differences and the similarities between a 408(k) retirement plan and a simplified employee pension (SEP), and ... Read Answer >>
Related Articles
  1. Retirement

    Business Owners: How To Set Up An SEP IRA

    SEP IRAs are simple to set up and run, making them a popular choice for business owners.
  2. Retirement

    SEP IRA Limits in 2016

    Discover the SEP IRA limits for 2016. Included is a summary, plans that would be ideal candidates for SEP IRAs, and contribution and distribution rules.
  3. Financial Advisor

    SEP IRAs Tutorial

    Learn about the set-up, the contributions to and the distributions from this IRA-based plan to which employers may make tax-deductible contributions on behalf of eligible employees.
  4. Retirement

    Retirement Planning For The Self-Employed

    Recent studies show that most self-employed Americans are saving little, if anything, for retirement. But making an investment in yourself is worth it.
  5. Retirement

    SIMPLE IRA Contribution Limits in 2016

    Learn the SIMPLE IRA contribution limits for 2016, with a brief summary of how the plan works, including eligibility and contribution and distribution rules.
  6. Financial Advisor

    The Pros and Cons of a SEP Account in Today's Volatile Markets

    Discover why you don't have to worry about a volatile market's impact on your simplified employee pension plan. Learn to use your SEP to navigate the markets.
  7. Financial Advisor

    Keough vs. SEP: Small Business Retirement Plans

    Running your own company can lead to great personal satisfaction, but it can make planning for retirement a huge headache. Here are two plan options.
  8. Retirement

    Retire? Me? Smart Strategies For Business Owners

    Retiring successfully if you're a small business owner requires both an exit strategy and a good retirement plan. Here's how to get started.
RELATED TERMS
  1. Simplified Employee Pension - SEP (Simplified Employee Pension IRA)

    A retirement plan that an employer or self-employed individuals ...
  2. Key Employee

    An employee with a major ownership and/or decision-making role ...
  3. Savings Incentive Match Plan For Employees Of Small Employers - SIMPLE

    A retirement plan that may be established by employers, including ...
  4. Unit Benefit Formula

    A method of calculating an employer's contribution to an employee's ...
  5. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  6. Money-Purchase Pension Plan

    A pension plan to which employers and employees make contributions ...
Hot Definitions
  1. Smart Home

    A convenient home setup where appliances and devices can be automatically controlled remotely from anywhere in the world ...
  2. Efficient Frontier

    A set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a ...
  3. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the ...
  5. Border Adjustment Tax

    A tax levied on goods based on where they are sold – exported goods are exempt from tax; those imported and sold in the ...
  6. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
Trading Center