Form 5305-Sep - Simplified Employee Pension - Individual Retirement Accounts Contribution Agreement Page 2
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Form 5305-SEP (Rev. 12-2004)
Page
SEP are deductible for your tax year with or
An employer is not required to make SEP
occur before you reach age 59
1
⁄
, you may be
2
within which the calendar year ends.
contributions. If a contribution is made,
subject to a tax on early withdrawal.
Contributions made for a particular tax year
however, it must be allocated to all eligible
Excess SEP contributions. Contributions
must be made by the due date of your
employees according to the SEP agreement.
exceeding the yearly limitations may be
income tax return (including extensions) for
The Model SEP (Form 5305-SEP) specifies
withdrawn without penalty by the due date
that tax year.
that the contribution for each eligible
(plus extensions) for filing your tax return
employee will be the same percentage of
(normally April 15), but are includible in your
Completing the agreement. This agreement
compensation (excluding compensation
gross income. Excess contributions left in
is considered adopted when:
greater than $205,000*) for all employees.
your SEP-IRA after that time may have
● IRAs have been established for all your
Your employer will provide you with a copy of
adverse tax consequences. Withdrawals of
eligible employees;
the agreement containing participation rules and
those contributions may be taxed as
a description of how employer contributions
premature withdrawals.
● You have completed all blanks on the
may be made to your IRA. Your employer must
agreement form without modification; and
Financial institution requirements. The
also provide you with a copy of the completed
financial institution where your IRA is
Form 5305-SEP and a yearly statement showing
● You have given all your eligible employees
maintained must provide you with a disclosure
any contributions to your IRA.
the following information:
statement that contains the following
All amounts contributed to your IRA by your
information in plain, nontechnical language:
1. A copy of Form 5305-SEP.
employer belong to you even after you stop
1. The law that relates to your IRA.
working for that employer.
2. A statement that traditional IRAs other
2. The tax consequences of various options
than the traditional IRAs into which employer
Contribution limits. Your employer will
concerning your IRA.
SEP contributions will be made may provide
determine the amount to be contributed to
3. Participation eligibility rules, and rules on
different rates of return and different terms
your IRA each year. However, the amount for
the deductibility of retirement savings.
concerning, among other things, transfers and
any year is limited to the smaller of $41,000*
4. Situations and procedures for revoking
withdrawals of funds from the IRAs.
or 25% of your compensation for that year.
your IRA, including the name, address, and
3. A statement that, in addition to the
Compensation does not include any amount
telephone number of the person designated
information provided to an employee at the
that is contributed by your employer to your
to receive notice of revocation. This
time the employee becomes eligible to
IRA under the SEP. Your employer is not
information must be clearly displayed at the
participate, the administrator of the SEP must
required to make contributions every year or
beginning of the disclosure statement.
furnish each participant within 30 days of the
to maintain a particular level of contributions.
effective date of any amendment to the SEP,
5. A discussion of the penalties that may
Tax treatment of contributions. Employer
a copy of the amendment and a written
be assessed because of prohibited activities
contributions to your SEP-IRA are excluded
explanation of its effects.
concerning your IRA.
from your income unless there are
6. Financial disclosure that provides the
4. A statement that the administrator will
contributions in excess of the applicable limit.
following information:
give written notification to each participant of
Employer contributions within these limits will
a. Projects value growth rates of your IRA
any employer contributions made under the
not be included on your Form W-2.
SEP to that participant’s IRA by the later of
under various contribution and retirement
Employee contributions. You may make
January 31 of the year following the year for
schedules, or describes the method of
regular IRA contributions to an IRA. However,
which a contribution is made or 30 days after
determining annual earnings and charges that
the amount you can deduct may be reduced
the contribution is made.
may be assessed.
or eliminated because, as a participant in a
b. Describes whether, and for when, the
SEP, you are covered by an employer
Employers who have established a SEP
growth projections are guaranteed, or a
retirement plan.
using Form 5305-SEP and have furnished
statement of the earnings rate and the terms
each eligible employee with a copy of the
SEP participation. If your employer does not
on which the projections are based.
completed Form 5305-SEP and provided the
require you to participate in a SEP as a
c. States the sales commission for each
other documents and disclosures described in
condition of employment, and you elect not to
year expressed as a percentage of $1,000.
Instructions to the Employer and Information
participate, all other employees of your
for the Employee, are not required to file the
employer may be prohibited from participating.
In addition, the financial institution must
annual information returns, Forms 5500 or
If one or more eligible employees do not
provide you with a financial statement each
5500-EZ for the SEP. However, under Title I of
participate and the employer tries to establish
year. You may want to keep these statements
the Employee Retirement Income Security Act
a SEP for the remaining employees, it could
to evaluate your IRA’s investment performance.
of 1974 (ERISA), this relief from the annual
cause adverse tax consequences for the
reporting requirements may not be available to
participating employees.
Paperwork Reduction Act Notice. You are
an employer who selects, recommends, or
not required to provide the information
An employer may not adopt this IRS Model
influences its employees to choose IRAs into
requested on a form that is subject to the
SEP if the employer maintains another
which contributions will be made under the
Paperwork Reduction Act unless the form
qualified retirement plan. This does not
SEP, if those IRAs are subject to provisions
displays a valid OMB control number. Books
prevent your employer from adopting this IRS
that impose any limits on a participant’s ability
or records relating to a form or its instructions
Model SEP and also maintaining an IRS
to withdraw funds (other than restrictions
must be retained as long as their contents
Model Salary Reduction SEP or other SEP.
imposed by the Code that apply to all IRAs).
may become material in the administration of
However, if you work for several employers,
For additional information on Title I
any Internal Revenue law. Generally, tax
you may be covered by a SEP of one
requirements, see the Department of Labor
returns and return information are confidential,
employer and a different SEP or pension or
regulation at 29 CFR 2520.104-48.
as required by section 6103.
profit-sharing plan of another employer.
Information for the Employee
The time needed to complete this form will
SEP-IRA amounts—rollover or transfer to
vary depending on individual circumstances.
The information below explains what a SEP is,
another IRA. You can withdraw or receive
The estimated average time is:
how contributions are made, and how to treat
funds from your SEP-IRA if, within 60 days of
your employer’s contributions for tax
Recordkeeping
1 hr., 40 min.
receipt, you place those funds in the same or
purposes. For more information, see Pub. 590.
another IRA. This is called a “rollover” and
Learning about the
can be done without penalty only once in any
law or the form
1 hr., 35 min.
Simplified employee pension. A SEP is a
1-year period. However, there are no
Preparing the form
1 hr., 41 min.
written arrangement (a plan) that allows an
restrictions on the number of times you may
employer to make contributions toward your
If you have comments concerning the
make “transfers” if you arrange to have these
retirement. Contributions are made to a
accuracy of these time estimates or suggestions
funds transferred between the trustees or the
traditional individual retirement
for making this form simpler, we would be
custodians so that you never have
account/annuity (traditional IRA).
happy to hear from you. You can write to the
possession of the funds.
Contributions must be made to either a
Internal Revenue Service, Tax Products
Model traditional IRA executed on an IRS
Withdrawals. You may withdraw your
Coordinating Committee, SE:W:CAR:MP:T:T:SP,
form or a master or prototype traditional IRA
employer’s contribution at any time, but any
1111 Constitution Ave. NW, Washington, DC
for which the IRS has issued a favorable
amount withdrawn is includible in your
20224. Do not send this form to this address.
opinion letter.
income unless rolled over. Also, if withdrawals
Instead, keep it with your records.
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