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. 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 >>
  3. Can catch-up contributions be made to a SEP?

    Find out why catch-up contributions are not typically allowed for SEP IRAs. Learn why the terms of your specific plan may ... Read Answer >>
  4. How does a Simplified Employee Pension (SEP) IRA work?

    Learn about a Simplified Employer Pension, or SEP, IRA and how it works, who participates and what advantages it has over ... 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

    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.
  3. 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.
  4. 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.
  5. 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.
RELATED TERMS
  1. Simplified Employee Pension - SEP (Simplified Employee Pension IRA)

    A retirement plan that an employer or self-employed individuals ...
  2. IRS Publication 560: Retirement Plans for Small Business (SEP, SIMPLE and Qualified ...

    A document published by the Internal Revenue Service (IRS) that ...
  3. Corporate Pension Plan

    A formal arrangement between a company and its employees - or ...
  4. Savings Incentive Match Plan For Employees Of Small Employers - SIMPLE

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

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

    A plan that meets requirements of the Internal Revenue Code and ...
Hot Definitions
  1. Applicable Federal Rate - AFR

    Rates published monthly by the IRS for federal income tax purposes. These rates are used to calculate assigned interest charges. ...
  2. Foreign Exchange Reserves

    Foreign exchange reserves are reserve assets held by a central bank in foreign currencies, used to back liabilities on their ...
  3. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that decreased and eventually eliminated tariffs to encourage economic activity ...
  4. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  5. Derivative

    A security with a price that is dependent upon or derived from one or more underlying assets.
  6. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
Trading Center