SEP/IRA Eligibilty

[MarkCTX]

Client (LLP) has a SEP/IRA plan and uses the 5305-SEP model. Any employee who has worked 3 of the last 5 years is eligible to participate in the plan. There are other requirements such as 21 or over plus earnings exceeding $550. According to the rules, the employer "may" exclude anyone who has not worked 3 of the last 5 years. Client wants to hire someone and include her in the plan immediately. Can he do that? In other words "must" the employer exclude anyone who has not worked 3 of the last 5 years?

Mark C.

[Golden Rocket]

I think he "must"

One of the basics in this type of plan is non-discrimination. Language which in any way opens the door for the owner to pick and choose amongst those
otherwise unqualified could jeopardize the integrity of the plan.

[TaxGuyBill]

As long as the employer keeps the rules consistant with all of the employees, they may have "less restrictive eligibility requirements" than that. Look at the 5305-SEP and you'll see they are options.

http://www.irs.gov/irm/part4/irm_04-072-017.html#d0e175

http://www.irs.gov/pub/irs-pdf/f5305sep.pdf