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 >>
Related Articles
  1. 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.
  2. 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.
  3. 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.
  4. Retirement

    Is a Vanguard SEP IRA Account Right for You?

    Learn about the SEP IRA offered by Vanguard and why it is one of the best SEP products available, including why it's a good fit for small business owners.
  5. Small Business

    Deferred Compensation Plans for Small Business Owners

    Find out the best tax-qualified options business owners can use to defer their compensation and accumulate capital for their retirement.
  6. Retirement

    Is a SIMPLE IRA Right for Your Small Business?

    Here's how small businesses can benefit from offering a SIMPLE IRA to their employees.
RELATED TERMS
  1. Simplified Employee Pension - SEP (Simplified Employee Pension IRA)

    A retirement plan that an employer or self-employed individuals ...
  2. SIMPLE IRA

    A retirement plan that can be used by most small businesses with ...
  3. Corporate Pension Plan

    A formal arrangement between a company and its employees - or ...
  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. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  2. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  3. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  4. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  5. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
  6. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers ...
Trading Center