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- April 25, 2018 at 4:33 am #188180
This article states that the employee contribution rate must be the same as the employer rate… e.g. that if the employer makes a contribution to himself or herself equal 15% of his or her annual income, all the employees must also get 15% contributions.
I believe that this is incorrect. It does not state this on form 5305-SEP and when I asked TD Ameritrade on the phone they said it could be different.
What is important is that all the employees get the same percentage as each other. So another words, if the employer gave himself a contribution equal to 15% of his salary, he would be fine if he gave each and every employee that met minimum qualifying criteria 10%. To quote the form:
“The Model SEP (Form 5305-SEP) specifies that the contribution for each eligible employee will be the same percentage of compensation (excluding compensation greater than $205,000*) for all employees.”
Do you agree? If I am correct the article is incorrect when it states “If you contribute 15% of your own income to your SEP account, you must contribute 15% of each eligible employee’s annual income to their respective SEP IRA accounts, up to $55,000 for each employee.”