Retirement Topics - Who Can Participate in a SEP or SARSEP Plan?
An eligible employee (including a self-employed individual who received earned income) is an individual who meets all the following requirements:
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Has reached age 21
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Has worked for the employer in at least 3 of the last 5 years
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Received at least $550 in compensation from the employer during the year (for 2010 and 2011)
An employer can use less restrictive participation requirements than those listed, but not more restrictive ones.
An employer can exclude the following employees from a SEP or SARSEP:
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Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and the employer
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Nonresident alien employees who do not have U.S. wages, salaries or other personal services compensation from the employer
Example 1: Employer X maintains a calendar year SEP. The eligibility requirements under the SEP are: an employee must perform service in at least three of the immediately preceding five years, reach age 21 and earn the minimum amount of compensation during the current year. Bob worked for Employer X during his summer breaks from school in 2007, 2008 and 2009, but never more than 34 days in any year. In July 2010, Bob turned 21. In August 2010, Bob began working for Employer X on a full-time basis, earning $30,000 in 2010. Bob is an eligible employee in 2010 because he has met the minimum age requirement, has worked for Employer X in three of the five preceding years and has met the minimum compensation requirement for 2010.
Example 2: Employer Y designs its SEP to provide for immediate participation regardless of age, service or compensation. John is age 18 and began working part-time for Employer Y in 2010. John is an eligible employee for 2010.
Additional Resources:
Pub 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
Pub 4333, SEP Retirement Plans for Small Businesses
Publication 4285, SEP Checklist
FAQs regarding SEPs
