SEP Plan Fix-It Guide

 
Mistake

Find the Mistake

Fix the Mistake

Avoid the Mistake


You haven't updated your SEP plan document for current law

 

Determine if your Form 5305-SEPPDF 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

Employees of related businesses were excluded from participating
 

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

Eligible employees were excluded from participating
 

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

Contributions to participants’ SEP-IRAs were miscalculated because the  wrong definition of compensation was used

 


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

Contributions to each participant’s SEP-IRA weren't a uniform percentage of the participant’s compensation
 

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

Contributions to the SEP-IRA exceeded the maximum legal limits
 

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 ($61,000 for 2022; $58,000 for 2021 and $57,000 for 2020)

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

SEP Overview
EPCRS Overview
SEP ChecklistPDF
IRA-Based Plans Additional Resources