SEP Fix-It Guide - Common Problems, Real Solutions
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Potential Mistake |
Find the Mistake |
Fix the Mistake |
Avoid the Mistake |
1) You have not updated your SEP plan document for current law (More) |
Determine if your Form 5305-SEP is the current revision (December 2004) |
Adopt revised Form 5305-SEP |
Maintain regular contact with the company that sold you the plan |
2) The plan excluded employees of related businesses 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 have been in if there were no operational plan mistakes |
Determine if you own any other businesses |
3) The plan excluded an eligible employee from participating (More) |
Review eligibility and participation plan document sections. Check when employees are entering the plan |
Corrective contribution that would place affected employees in the position they would have 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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Review the plan document to determine if you are using the proper compensation for allocations |
Correction is based upon the terms of the plan at the time of the mistake |
Review the plan terms to ensure that you are considering the correct amount of compensation when calculating contributions |
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Divide contributions by compensation for each employee |
Corrective contribution that would place affected employees in the position they would have been in if there were no operational plan mistakes |
After the initial calculation of allocations based on the plan terms, verify that all proposed contributions are based on a uniform percentage of participants’ compensation |
6) Contributions to the SEP-IRA exceeded the maximum legal limits (More) |
Calculate 25% of each employee’s compensation and compare total contribution made for the employee to the lesser of that amount or the dollar limitation for that year ($50,000 for 2012 and $51,000 for 2013) |
Either distribute or retain the excess amount |
After the initial calculation of allocations based on the terms of the plan, check to make sure none of the proposed allocations would violate the Code |
SEP Overview
EPCRS Overview
SEP Fix-It Guide (pdf)
SEP Checklist
IRA-Based Plans Additional Resources
IRS.gov / Retirement Plans / Correcting Plan Errors / Fix-It Guides / SEP Fix-It Guide
Page Last Reviewed or Updated: 2012-10-22
