SEP IRA Qualifying Period

[JohnH]

When using a 3-year qualifying period for a SEP IRA contribution, does the year of the contribution count?

For example, if the employee has earnings in 2006, can he be excluded if he had earnings in 2004 & 2005 but no earnings in 2001, 2002, & 2003? (This all assumes the employee was over the age limit and earnings exceeded the applicable amounts for all years in question. The only issue is what years are counted in the 3-out-of-5 year qualifying period)

[New York Enrolled Agent]

I believe (B) answers the question.

IRC §408(k)(2) Participation requirements.
This paragraph is satisfied with respect to a simplified employee pension for a year only if for such year the employer contributes to the simplified employee pension of each employee who—

(A) has attained age 21,

(B) has performed service for the employer during at least 3 of the immediately preceding 5 years, and

(C) received at least $450 in compensation (within the meaning of section 414(q)(4) ) from the employer for the year.

[JohnH]

Looks like that's it

The year of the contribution does not count in the 5-year period.

So for an employer making a contribution for people on the payroll in 2006 and having decided to use a 3-year qualifying period, he excludes anyone who has 2006 earnings but only has earnings in 2 of the years 2001-2005.