Form 5305A-SEP
(Rev. March 1994)
Department of the Treasury
Internal Revenue Service
SALARY REDUCTION AND OTHER ELECTIVE SIMPLIFIED
EMPLOYEE PENSION-INDIVIDUAL
RETIREMENT ACCOUNTS CONTRIBUTION AGREEMENT
(UNDER SECTION 408(K) OF THE INTERNAL REVENUE CODE)
CMB No. 1545-1012
Expires 3-31-96
DO NOT File with
the Internal
Revenue Service
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______________________establishes the following Model Elective SEP under
(Name of employer) section 408(k) of the Internal Revenue Code and the
instructions to this form.
ARTICLE I--ELIGIBILITY REQUIREMENTS (Check appropriate boxes--see
INSTRUCTIONS.)
Provided the requirements of Article III are met, the employer agrees to
permit elective deferrals to be made in each calendar year to the individual
retirement accounts or individual retirement annuities (IRAs), established by
or for all employees who are at least _____ years old (not to exceed 21 years
old) and have performed services for the employer in at least _____ years (not
to exceed 3 years) of the immediately preceding 5 years. This simplified
employee pension (SEP) __ includes ___ does not include employees covered
under a collective bargaining agreement, ___ includes ___ does not include
certain nonresident aliens, and ___ includes ___ does not include employees
whose total compensation during the year is less than $396.*
ARTICLE II--SEP REQUIREMENTS (See INSTRUCTIONS.)
A. SALARY REDUCTION OPTION. An eligible employee may elect to have his or her
compensation reduced by the following percentage or amount per pay period, as
designated in writing to the employer. Check appropriate box(es) and fill in
the blanks.
1. __ An amount not in excess of _____ percent (not to exceed 15
percent) of an eligible employee's compensation.
2. __ An amount not in excess of $____________.
B. CASH BONUS OPTION. An eligible employee may have elective deferrals on
bonuses that, at the employee's election, may be contributed to the SEP or
received in cash during the calendar year. Check if elective deferrals on
bonuses may be made to this SEP. ___
C. TIMING OF ELECTIVE DEFERRALS. No deferral election may be based on
compensation an eligible employee received, or had a right to receive, before
execution of the deferral election.
ARTICLE III--SEP REQUIREMENTS (See instructions.)
The employer agrees that each employee's elective deferrals to the SEP will
be:
A. Based only on the first $150,000 of compensation.
B. Limited annually to the smaller of: (1) 15 percent of compensation; or
(2) $9,240*.
C. Limited further under section 415, if the employer also maintains another
SEP.
▇. ▇▇▇▇ to the employee's IRA trustee, custodian, or insurance company (for
an annuity contract) or, if necessary, an IRA established for an employee by
the employer.
E. Made only if at least 50 percent of the employer's employees eligible to
participate elect to have amounts contributed to the SEP. If the 50 percent
requirement is not satisfied as of the end of any calendar year, then all of
the elective deferrals made by the employees for that calendar year will be
considered "disallowed deferrals," i.e., IRA contributions that are not SEP-
IRA contributions.
F. Made only if the employer had 25 or fewer employees eligible to
participate at all times during the prior calendar year.
G. Adjusted only if deferrals to this SEP for any calendar year do not meet
the "deferral percentage limitation" described on page 3.
ARTICLE IV--EXCESS SEP CONTRIBUTIONS (See instructions.)
Elective deferrals by a "highly compensated employee" must satisfy the
deferral percentage limitation under section 408(k)(6)(A)(iii). Amounts in
excess of this limitation will be deemed excess SEP contributions for the
affected highly compensated employee or employees.
ARTICLE V--NOTICE REQUIREMENTS (See instructions.)
A. The employee will notify each highly compensated employee, by March 15
following the end of the calendar year to which any excess SEP contributions
relate, of the excess SEP contributions to the highly compensated employee's
SEP-IRA for the applicable year. The notification will specify the amount of
the excess SEP, the calendar year in which the contributions are includible in
income, and must provide an explanation of applicable penalties if the excess
contributions are not withdrawn on time.
B. The employer will notify each employee who makes an elective deferral to a
SEP that, until March 15 after the year of the deferral, any transfer or
distribution from that employee's SEP-IRA of SEP contributions (or income on
these contributions) attributable to elective deferrals made that year will be
includible in income for purposes of sections 72(t) and 408(d)(1).
C. The employer will notify each employee by March 15 of each year of any
disallowed deferrals to the employee's SEP-IRA for the preceding calendar
year. Such notification will specify the amount of the disallowed deferrals
and the calendar year in which those deferrals are includible in income and
must provide an explanation of applicable penalties if the disallowed
deferrals are not withdrawn on time.
ARTICLE VI--TOP-HEAVY REQUIREMENTS (See instructions.)
A. Unless paragraph B below is checked, the employer will satisfy the top-
heavy requirements of section 416 by making a minimum contribution each year
to the SEP-IRA of each employee eligible to participate in this SEP (other
than a key employee defined in section 416(i). This contribution, in
combination with other nonelective contributions, if any, is equal to the
smaller of 3 percent of each eligible non-key employee's compensation or a
percentage of such compensation equal to the percentage of compensation at
which elective and nonelective contributions are made under this SEP (and any
other SEP maintained by the employer) for the year for the key employee for
whom such percentage is the highest for the year.
B. ___ The top-heavy requirements of section 416 will be satisfied through
contributions to non-key employees' SEP-IRAs under this employer's nonelective
SEP.
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*This amount reflects the cost-of-living increase effective January 1, 1994.
The amount is adjusted annually. Each January, the IRS announces the
increase, if any, in a news release and in the Internal Revenue Bulletin.
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ARTICLE VI--TOP-HEAVY REQUIREMENTS (Continued)
C. To satisfy the minimum contribution requirement under section 416, all
nonelective SEP contributions will be taken into account but elective
deferrals will not be taken into account.
ARTICLE VII--EFFECTIVE DATE (See instructions.)
This SEP will be effective upon adoption and establishment of IRAs for all
eligible employees.
_______________________________ ____________ _____________________
Employer's signature Date Name and title
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PAPERWORK REDUCTION ACT NOTICE
The time needed to complete this form will vary depending on individual
circumstances. The estimated average time is:
Recordkeeping..................................................... 40 min.
Learning about the law or the form................................ 54 min.
Preparing the form.......................................... 1 hr., 5 min.
If you have comments concerning the accuracy of these time estimates or
suggestions for making this form more simple, we would be happy to hear from
you. You can write to both the INTERNAL REVENUE SERVICE, Attention: Reports
Clearance Officer, PC:FP, Washington, DC 20224; and the OFFICE OF MANAGEMENT
and Budget, Paperwork Reduction Project (1545-1012), Washington, DC 20503, DO
NOT send this form to either of these addresses. Instead, keep it for your
records.
A CHANGE TO NOTE
For years beginning after December 31, 1993, the Revenue Reconciliation Act of
1993 (the Act) reduced to $150,000 the annual compensation of each employee to
be taken into account in making contributions to a SEP. The $150,000 amount
will be indexed for inflation after 1994 in increments of $10,000 that will be
rounded to the next lowest multiple of $10,000. See Act section 13212 for
different effective dates and the transition rules that apply to plans under a
collective bargaining agreement.
GENERAL INSTRUCTIONS
SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE UNLESS OTHERWISE NOTED.
PURPOSE OF FORM.--Form 5305A-SEP is a model elective simplified employee
pension (SEP) used by an employer to permit employees to make elective
deferrals to a SEP described in section 408(k). DO NOT file this form with
the IRS.
SPECIFIC INSTRUCTIONS
INSTRUCTIONS TO THE EMPLOYER
SIMPLIFIED EMPLOYEE PENSION.--A SEP is a written arrangement (a plan) that
provides you with a simplified way to make contributions toward your
employees' retirement income. Under an elective SEP, employees may choose
whether or not to make elective deferrals to the SEP or to receive the amounts
in cash. If elective deferrals are made, you contribute the amounts deferred
by employees directly into an individual retirement arrangement (IRA) set up
by or for each employee with a bank, insurance company, or other qualified
financial institution. The IRA, established by or for an employee, must be
one for which the IRS has issued a favorable opinion letter or a model IRA
published by the Service as Form 5305, Individual Retirement Trust Account, or
Form 5305-A, Individual Retirement Custodial Account. Adopting Form 5305A-SEP
does not establish an employer IRA described in section 408(c).
The information provided below is intended to help you understand and
administer the elective deferral rules of your SEP.
WHEN TO USE FORM 5305A-SEP
Do not use Form 5305A-SEP if you:
1. Have any leased employees as defined in section 414(n)(2).
2. Previously maintained a have maintained a defined benefit plan that is
now terminated.
3. Currently maintain any other qualified retirement plan. This does not
prevent you from also maintaining a Model SEP/Form 5305-SEP, Simplified
Employee Pension--Individual Retirement Accounts Contribution
Agreement) or other SEP to which either elective or nonelective
contributions are made.
4. Have more than 25 employees eligible to participate in the SEP at any
time during the prior calendar yea. (If you are a member of one of the
groups described in paragraph 2 under EXCESS SEP CONTRIBUTIONS--
DEFERRAL PERCENTAGE LIMITATION on page 3, you may use this SEP only if
in the prior year there were never more than 25 employees eligible to
participate in this SEP, in total, of all the members of such groups,
trades, or businesses. In addition, all eligible employees of all the
members of such groups, trades, or businesses must be eligible to make
elective deferrals to this SEP).
5. Are a state or local government or a tax-exempt organization.
Use this form only if you intend to permit elective deferrals to a SEP. If
you want to establish a SEP to which nonelective employer contributions may be
made, use Form 5305-SEP or a nonmodel SEP instead of, or in addition to, this
form.
COMPLETING THE AGREEMENT
This SEP agreement is considered adopted when:
1. You have completed all blanks on the form.
2. You have given all eligible employees the following information:
a. A copy of Form 5305A-SEP. (Any individual who in the future becomes
eligible to participate in this SEP must be given Form 5305A-SEP, upon
becoming an eligible employee.)
b. A statement that IRAs other than the IRAs into which employer SEP
contributions will be made may provide different rates of return and
different terms concerning, among other things, transfers and
withdrawals of funds from the IRAs.
c. A statement that, in addition to the information provided to an
employee at the time the employee becomes eligible to participate, the
administrator of the SEP must furnish each participant within 30 days
of the effective date of any amendment to the SEP, a copy of the
amendment and a written explanation of its effects.
d. A statement that the administrator will give written notification to
each participant of any employer contributions made under the SEP to
that participant's IRA by the later of January 31 of the year following
the year for which a contribution is made or 30 days after the
contribution is made.
Employers who have established a SEP using Form 5305A-SEP and have provided
each participant a copy of Form 5305A-SEP, are not required to file the annual
information returns, Forms 5500, 5500-C/R, or 5500-EZ, for the SEP. However,
under Title I of ERISA, relief from the annual reporting requirements is not
available to an employer who selects, recommends, or influences its employees
to choose IRAs, into which employer contributions will be made, if those IRAs
are subject to provisions that prohibit withdrawal of funds for any period.
FORMS AND PUBLICATIONS YOU MAY USE
An employer may use any of the following forms or publications:
* Form W-2, Wage and Tax Statement. If you have already issued a Form W-
2 to your employees at the time of notification of excess SEP
contributions, you may also have to issue to those affected employees
an amendment Form W-2 to reflect any excess SEP contributions and
disallowed deferrals that must be included in the employee's income.
See the discussion of excess SEP contributions and disallowed deferrals
beginning on page 3.
* Form 5330, Return of Excise Taxes Related to Employee Benefit Plans.
Employers who are liable for the 10% tax on excess contributions use
this form to pay the excise tax.
* Pub. 560, Retirement Plans for the Self-Employed.
* Pub. 590, Individual Retirement Arrangements (IRAs).
DEDUCTING CONTRIBUTIONS
You may deduct, subject to any applicable limits, those contributions made to
a SEP. This SEP is maintained on a calendar year basis, and contributions to
the SEP are deductible for your tax year with or within which the particular
calendar year ends. See section 404(h). Contributions made for a particular
tax year and contributed by the due date of your income tax return, including
extensions, are deemed made in that tax year and the contributions are
deductible if they would otherwise be deductible had they actually been
contributed by the end of that tax year. See Rev. Rul. 90-105, 1990-2 C.B.
69. However, the deductibility of your contributions may be limited if the
contributions are excess contributions. See EXCESS SEP CONTRIBUTIONS--
DEFERRAL PERCENTAGE LIMITATION below and the DEFERRAL PERCENTAGE LIMITATION
WORKSHEET on page 8.
EFFECTIVE DATE
The SEP agreement is effective upon adoption and the establishment of IRAs by
or for all of your eligible employees. Moreover, no elective deferrals may be
made by an employee on the basis of compensation that the employee received or
had a right to receive before adoption of this agreement and execution by the
employee of the deferral election.
ELIGIBLE EMPLOYEES
All eligible employees must be allowed to participate in the SEP. An eligible
employee is any employee who: (1) is at least 21 years old, and (2) has
performed "service" for you in at least 3 of the immediately preceding 5
years.
Note: You can establish less restrictive eligibility requirements, but not
more restrictive ones.
Service means any work performed for you for any period of time, however
short. If you are a member of an affiliated service group, a controlled group
of corporations, or trades or businesses under common control, service
includes any work performed for any period of time for any other member of
such group, trades, or businesses.
EXCLUDABLE EMPLOYEES
The following employees do not have to be covered by the SEP: (1) employees
covered by a collective bargaining agreement whose retirement benefits were
bargained for in good faith by you and their union, (2) nonresident alien
employees who did not earn U.S. source income from you, and (3) employees who
received less than $396* in compensation during the year.
ELECTIVE DEFERRALS
You may permit your employees to make elective deferrals through salary
reduction or on the basis of bonuses that, at the employee's option, may be
contributed to the SEP or received by the employee in cash during the year.
You must inform your employees how they may make, change, or terminate
elective deferrals based on either salary reduction or cash bonuses. You
must also provide a form on which they may make their deferral elections. You
may use the Model Elective SEP Deferral Form (elective form) on page 5, or a
form that explains the information contained in this form in a way that is
written to be understood by the average plan participant.
SEP REQUIREMENTS
* Elective deferrals may not be based on more than $150,000 of
compensation. See A Change To Note on page 2. Compensation, for
purposes other than the $396* rule (see ELIGIBLE EMPLOYEES, above), is
defined as wages under section 3401(a) for income tax withholding at
the source but without regard to any rules that limit the remuneration
included in wages based on the nature or location of the employment or
the services performed (such as the exception for agricultural labor in
section 3401(a)(2)). Compensation also includes earned income under
section 401(c)(2). Compensation does not include any SEP
contributions.
* The maximum limit on the amount an employee may elect to defer under
this SEP for a year is the smaller of 15% of the employee's
compensation or the limitation under section 402(g), as explained
below.
Note: The deferral limit is 15 percent of compensation (minus any employer
SEP contributions). Compute this amount using the following formula:
Compensation (before subtracting employer SEP contributions) x 13.0435
percent.
* If you make nonelective contributions to this SEP for a calendar year,
or maintain any other SEP to which contributions are made for that
calendar year, then contributions to all such SEPs may not exceed the
smaller of $30,000* or 15 percent of compensation for any employee.
* If you are a new employer who had no employees during the prior
calendar year, you will meet the limit in section 408(k)(6)(B) (for no
more than 25 eligible employees during the preceding year) if you had
25 or fewer employees during the first 30 days that your business was
in existence.
EXCESS ELECTIVE DEFERRALS
Section 402(g) limits the maximum amount of compensation an employee may elect
to defer under a SE{ (and certain other arrangements) during the calendar
year. this limit is $9,240 for 1994. In addition, the limit may be increased
if the employee makes elective deferrals to a salary reduction arrangement
under section 403(b). Amounts deferred for a year in excess of this limit are
considered "excess elective deferrals" and are subject to the rules described
below.
The limit applies to the total elective deferrals the employee makes for
the calendar year, from all employers, under the following arrangement:
* Elective SEPS under section 408(k)(6)
* Cash or deferred arrangements under section 401(k); and
* Salary reduction arrangements under section 403(b).
Thus, an employee may have excess elective deferrals even if the amount
deferred under this SEP alone does not exceed the section 402(g) limit.
If an employee who elects to defer compensation under this SEP and any
other SEP or arrangement has made excess elective deferrals for a calendar
year, the employee must withdraw those deferrals by April 15 following the
calendar year to which the deferrals relate. Deferrals not withdrawn by
April 15 will be subject to the IRA contribution limits of sections 219 and
408 and may be considered excess contributions to the employee's IRA. For the
employee, these excess elective deferrals are subject to a 6 percent tax on
excess contributions under section 4973.
Income on excess elective deferrals is includible in the employee's income
in the year it is withdrawn from the IRA. The income must be withdrawn by
April 15 following the calendar year for which the deferrals were made. If
the income is withdrawn after that date and the recipient is not 59 1/2 years
of age, it may be subject to the 10 percent tax on early distributions under
section 72(t).
EXCESS SEP CONTRIBUTIONS-DEFERRAL PERCENTAGE LIMITATION
The amount each of your "highly compensated employees" may contribute to an
elective deferral SEP is also limited by the "deferral percentage limitation."
This is based on the amount of money deferred, on average, by your nonhighly
compensated employees. Deferrals made by a highly compensated employee that
exceed this deferral percentage limitation for a calendar year are considered
"excess SEP contributions" and must be removed from the employee's SEP-IRA, as
discussed below.
The deferral percentage limitation for your highly compensated employees is
computed by first averaging the "deferral percentages" (defined below) for the
eligible nonhighly compensated employees for the year and then multiplying
this result by 1.25. The deferral percentage for a calendar year of any
highly compensated employee eligible to participate in this SEP may not be
more than the resulting product, the "deferral percentage limitation."
Only elective deferral are included in this computation. Nonelective SEP
contributions may not be included. The determination of the deferral
percentage for any employee is made under section 408(k)(6).
For purposes of this computation, the calculation of the number and
identity of highly compensated employees, and their deferral percentages, is
made on the basis of the entire "affiliated employer."
In addition, for purposes of determining the deferral percentage of a
highly compensated employee, the elective deferrals and compensation of the
employee will also include the elective deferrals and compensation of any
"family member." This special rule applies, however, only if the highly
compensated employee is a 5 percent owner (defined in
section 416(i)(1)(E)(ii)) or is one of a group of the 10 highest paid highly
compensated employees. The elective deferrals and compensation of family
members used in this special rule do not count in computing the deferral
percentages of individuals who do not fall into this group.
A worksheet is provided on page 8 to assist you in figuring the deferral
percentage. You may want to photocopy it for yearly use.
The following definitions apply for purposes of computing the deferral
percentage limitation.
1. DEFERRAL PERCENTAGE is the ration (expressed as a percentage to 2
decimal places) of an employee's elective deferrals for a calendar year to the
employee's compensation for that year. No more than $150,000 per individual
is taken into account. (See A CHANGE TO NOTE on page 2.) The deferral
percentage of an employee who is eligible to make an elective deferral, but
who does not make a deferral during the year, is zero. If a highly
compensated employee also makes elective deferrals under another elective SEP
maintained by the employer, then the deferral percentage of that highly
compensated employee includes elective deferrals made under the other SEP.
2. AFFILIATED EMPLOYER includes (a) any corporation that is a member of a
controlled group of corporations, described in section 414(b) that includes
the employer, (b) any trade or business that is under common control, defined
in section 414(c) with the employer, (c) any organization that is a member of
an affiliated service group, defined in section 414(m) that includes the
employer, and (d) any other entity required to be aggregated with the employer
under regulations under section 414(o).
3. A family member is an individual who is related to a highly compensated
employee as a spouse, or as a lineal ascendent (such as a parent or
grandparent), or descendent (such as a child or grandchild) or spouse of
either of those, under section 414(q______) and its regulations.
4. A highly compensated employee is an individual described in
section 414(q) who, during the current or preceding calendar year:
a. Was a 5 percent owner defined in section 416(i)(1)(B)(i),
b. Received compensation in excess of $66,000, and was in the top-paid
group (the top 20 percent of employees, by compensation),
c. Received compensation in excess of $99,000, or
d. Was an officer and received compensation in excess of 50 percent of
the dollar limit under section 415 for defined benefit plans. The
dollar limit is $118,800 in 1994. (No more than three employees
need be taken into account under this rule. At least one officer,
the highest-paid officer if no one else meets this test, however,
must be taken into account.)
EXCESS SEP CONTRIBUTIONS-NOTIFICATION
You must notify each affected employee, if any, by March 15 of the amount of
any excess SEP contributions made to that employee's SEP-IRA for the preceding
calendar year. (If needed, use the model form on page 5 of these
instructions.) These excess SEP contributions are includible in the
employee's gross income in the preceding calendar year. However, if the
excess SEP contributions (not including allocable income) total less than
$100, then the excess contributions are includible in the employee's gross
income in the calendar year of notification. Income allocable to the excess
SEP contributions is includible in gross income in the year of withdrawal from
the IRA.
If you do not notify any of your employees by March 15 of an excess SEP
contribution, you must pay a 10 percent tax on the excess SEP contribution for
the preceding calendar year. The tax is reported in Part XII of Form 5330.
If you do not notify our employees by December 31 of the calendar year
following the calendar year in which the excess SEP contributions arose, the
SEP no longer will be treated as meeting the rules of section 408(k)(6). In
this case, any contribution to an employee's IRA will be subject to the IRA
contribution limits of section 219 and 408 and thus may be considered an
excess contribution to the employee's IRA.
Your notification to each affected employee of the excess SEP
contributions must specifically state in a manner written to be understood by
the average employee:
* The amount of the excess SEP contributions attributable to that
employee's elective deferrals;
* The calendar year in which the excess SEP contributions are includible
in gross income; and
* Information stating that the employee must withdraw the excess SEP
contributions (and allocable income) from the SEP-IRA by April 15
following the calendar year of notification by the employer. Excess
contributions not withdrawn by April 15 following the year of
notification will be subject to the IRA contribution limits of
sections 219 and 408 for the preceding calendar year and may be
considered excess contributions to the employee's IRA. For the
employee, the excess contributions may be subject to the 6 percent tax
on excess contributions under section 4973. If income allocable to an
excess SEP contribution is not withdrawn by April 15 following the
calendar year of notification by the employer, the employee may be
subject to the 10 percent tax on early distributions under
section 72(t) when withdrawn.
For information on reporting excess SEP contributions, see Notice 87-77,
1987-2 C.B. 385, Notice 88-33, 1988-1 C.B. 513, Notice 89-32, 1989-1 C.B. 671,
and Rev. Proc. 91-44, 1991-2 C.B. 733.
To avoid the complications caused by excess SEP contributions, you may
want to monitor elective deferrals continuing basis throughout the calendar
year to insure that the deferrals comply with the limits as they are paid into
each employee's SEP-IRA.
DISALLOWED DEFERRALS
If you determine at the end of any calendar year that more than half of your
eligible employees have chosen not to make elective deferrals for that year,
then all elective deferrals made by your employees for that year will be
considered disallowed deferrals, i.e., IRA contributions that are not SEP-IRA
contributions.
You must notify each affected employee by March 15 that the employee's
deferrals for the previous calendar year are no longer considered SEP-IRA
contributions. Such disallowed deferrals are includible in the employee's
gross income in that preceding calendar year. Income allocable to the
disallowed deferrals is includible in the employee's gross income in the year
of withdrawal from the IRA.
Your notification to each affected employee of the disallowed deferrals
must clearly state:
* The amount of the disallowed deferrals;
* The calendar year in which the disallowed deferrals and earnings are
includible in gross income; and
* That the employee must withdraw the disallowed deferrals (and allocable
income) from the IRA by April 15 following the calendar year of notification
by the employer. Those disallowed deferrals not withdrawn by April 15
following the year of notification will be subject to the IRA contribution
limits of sections 219 and 408 and thus may be considered an excess
contribution to the employee's IRA. For the employee, these disallowed
deferrals may be subject to the 6 percent tax on excess contributions under
section 4973. If income allocable to a disallowed deferral is not withdrawn
by April 15 following the calendar year of notification by the employer, the
employee may be subject to the 10 percent tax on early distributions under
section 72(t) when withdrawn.
Disallowed deferrals should be reported the same way excess SEP
contributions are reported.
RESTRICTIONS ON WITHDRAWALS
Your highly compensated employees may not withdraw or transfer from their SEP-
RAs any SEP contributions (or income on these contributions) attributable to
elective deferrals made for a particular calendar year until March 15 of the
following year. Before that date, however, you may notify your employees when
the deferral percentage limitation test has been completed for a particular
calendar year and that this withdrawal restriction no longer applies. In
general, any transfer or distribution made before March 15 of the following
year (or notification, if sooner) will be includible in the employee's gross
income and the employee may also be subject to a 10 percent tax on early
withdrawal. This restriction does not apply to an employee's excess elective
deferrals.
TOP-HEAVY REQUIREMENTS
Elective deferrals may not be used to satisfy the minimum contribution
requirement under section 416. In any year in which a key employee makes an
elective deferral, this SEP is deemed top-heavy for purposes of section 416,
and you are required to make a minimum top-heavy contribution under either
this SEP or another SEP for each non-key employee eligible to participate in
this SEP.
A key employee under section 416(i)(1) is any employee or former employee
(and the beneficiaries of these employees) who, at any time during the
determination period, was:
* An officer of the employer (if the employee's compensation exceeds 50
percent of the section 415(b)(1)(A) limit, which was $118,800 in 1994,
* An owner of one of the 10 largest interests in the employer (if the
employee's compensation exceeds 100%of the section 415(c)(1)(A) limit, which
was $30,000 in 1994,
* A 5 percent owner of the employer, as defined in section 416(i)(1)(B)(i),
or a 1 percent owner of the employer (if the employee has compensation in
excess of $150,000).
The determination period is the current calendar year and the 4 preceding
years.
MODEL ELECTIVE SEP DEFERRAL FORM
I. SALARY REDUCTION DEFERRAL
Subject to the requirements of the Model Elective SEP of _______, I authorize
the following amount or percentage to be withheld from each of my paychecks
and contributed to my SEP-IRA.
(a) ________ percent (not to exceed 15%) of my salary; or (b) $_________.
This salary reduction authorization shall remain in effect until I provide
written modification or termination of its terms to my employer.
II. CASH BONUS DEFERRAL
Subject to the requirements of the Model Elective SEP of ________, I authorize
the following __________________________________(name of employee) amount to
be contributed to my SEP-IRA rather than being paid to me in cash: $______.
III. AMOUNT OF DEFERRAL
I understand that the total amount I defer in any calendar year may not exceed
the smaller of:
(a) 15 percent of my compensation (determined without including any SEP-IRA
contributions; or (b) $9,240.*
IV. COMMENCEMENT OF DEFERRAL
The deferral election in either I or II, above, shall not become effective
before ________________.
(Specify a date no earlier than the first day of the first pay period
beginning _________(Month, day, year) after this authorization.)
V. DISTRIBUTIONS FROM SEP-IRAS
I understand that I should not withdraw or transfer any amounts from my
SEP-IRA that are attributable to elective deferrals and income on elective
deferrals for a particular calendar year (except for excess elective
deferrals) until March 15 of the subsequent year or, if sooner, when my
employer notifies me that the deferral percentage limitation test for that
plan year has been completed. Any such amounts that I withdraw or transfer
before this time will be includible in income for purposes of sections 72(t)
and 408(a)(1).
Signature of employee ___________________________Date _____________________
*This amount reflects the cost-of-living increase under section 402(g)
effective January 1, 1994. The amount is adjusted annually. Each January,
the IRS announces the increase, if any, in a news release and in the internal
revenue bulletin.
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NOTIFICATION OF EXCESS SEP CONTRIBUTIONS
To: _____________________________
(name of employee)
Our calculations indicate that the elective deferrals you made to your SEP-
IRA for calendar year ____ exceed the maximum permissible limits under
section 408(k)(6). You made excess SEP contributions of $______for that year.
These excess SEP contributions are includible in your gross income for the
____________ (insert the year identified above or if less than $100, the
following year) calendar year.
These excess SEP contributions must be distributed from your SEP-IRA by
April 15, 19__ (insert year after the calendar year in which this notice is
given) in order to avoid possible penalties. Income allocable to the excess
amounts must be withdrawn at the same time and is includible in income in the
year of withdrawal. Excess SEP contributions remaining in your SEP-IRA
account after that time are subject to a 6 percent excise tax, and the income
on these excess SEP contributions may be subject to a 10 percent penalty when
finally withdrawn.
Signature of employee _________________________Date _______________________
_____________________________________________________________________________
DEFERRAL PERCENTAGE LIMITATION WORKSHEET (See instructions on page 3.)
(a) Employee Name ________________________________________________
________________________________________________
________________________________________________
(b) Status
H = HCE
F = Family
O = Other ________________________________________________
________________________________________________
________________________________________________
(c) Compensation ________________________________________________
________________________________________________
________________________________________________
(d) Deferrals ________________________________________________
(see below) ________________________________________________
________________________________________________
(e) Ratio
(if family member enter NA otherwise (d) - (c))
________________________________________________
________________________________________________
________________________________________________
(f) Permitted ratio
(for HCE* only, see below)
________________________________________________
________________________________________________
________________________________________________
(g) Permitted amount
(for HCE* only)(c) x (f)
________________________________________________
________________________________________________
________________________________________________
(h) Excess
(for HCE (only)(d) minus (g)
________________________________________________
________________________________________________
________________________________________________
Highly compensated employee.--See the special rule for family members on page
3.
Column (c). Compensation.--Enter compensation from this employer and any
related employers. Add any compensation paid to a "family member" to the
HCE's compensation.
Column (d). Deferrals.--Enter all SEP elective deferrals. Add any elective
deferrals of a "family member" to the HCE's elective deferrals.
Column (f). Permitted ratio.--
A Enter the total of the ratios in column (e) for the employees marked as
"O" in column (b) _________________________________________________.
B Divide line A by the number of employees marked as "O" in column (b)
C Permitted ratio.--Multiply line B by 1.25 and enter the permitted ratio
here _________________________________________.