Simplified Employee Pension Plan
Fix-It Guide
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Mistake |
Find the Mistake |
Fix the Mistake |
Avoid the Mistake |
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1) You haven’t updated your SEP plan document for current law (More) |
Determine if your Form 5305-SEP or SEP prototype plan document is the current revision (December 2004) | Adopt revised Form 5305-SEP or IRS-approved SEP prototype plan document. | Maintain regular contact with the company that sold you the plan |
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2) Employees of related businesses were excluded from participating (More) |
Identify any companies that you own or with which you have a financial relationship | Apply reasonable correction method that would place affected employees in the position they would’ve been in if there were no operational plan mistakes | Determine if you own any other businesses |
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3) Eligible employees were excluded from participating (More) |
Review plan sections on eligibility and participation and check when employees are entering the plan | Corrective contribution that would place affected employees in the position they would’ve been in if there were no operational plan mistakes | Review the participation status of all employees at least once a year |
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4) Contributions to participants’ SEP-IRAs were miscalculated because the wrong definition of compensation was used (More) |
Review the SEP plan document to determine if you’re using the proper compensation for allocations |
Correction is based on the terms of the plan in effect at the time of the mistake |
Review the SEP plan document terms to ensure that you’re considering the correct amount of compensation when calculating contributions |
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5) Contributions to each participant’s SEP-IRA weren’t a uniform percentage of the participant’s compensation (More) |
Divide contributions by compensation for each employee |
Corrective contribution that would place affected employees in the position they would’ve been in if there were no operational plan mistakes | After the initial calculation of allocations based on the SEP plan document’s terms, verify that all proposed contributions are based on a uniform percentage of participants’ compensation |
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6) Contributions to the SEP-IRA exceeded the maximum legal limits (More) |
Determine the total contribution made for each employee and make sure that amount does not exceed the lesser of: 1) 25% of that employee’s compensation, or 2) the dollar limitation for that year ($53,000 for 2015 and 2016) |
Either distribute or retain the excess amount | After the initial calculation of allocations based on the terms of the SEP plan document, check to make sure none of the proposed allocations would violate the law |
contact Vermillion Financial Advisors today.
Charles Schwab