SEP IRA rules for company with 5 or fewer employees
On your site you have a page called SEP IRA Rules, Contribution Limits, & Deadlines and it states:
3. Very Small Businesses
These companies typically have 5 employees or fewer. They have strong profits that aren’t always consistent. Contributions to SEP IRAs are discretionary – so they can be reduced or skipped in bad years – and tax-deductible for a business owner. Business owners can use a SEP to reward employees with profit-sharing contributions that aren’t taxed until withdrawn.
If a company of three employees and two owners paid into a SEP IRA for just the owners during the bad years, is that legal or does the contribution have to be made to all 5 employees or no one?
Hi Mike, Thanks for checking in here. While contributions to the SEP IRA is not required every year, if you do make a contribution to one, you must make a contribution to all.
Per the IRS, “when you contribute, you must contribute to all SEP-IRAs of all participants who actually performed personal services during the year for which the contributions are made…”
Hope that helps. Let us know if you have any other questions.
Thank you for your response. That is what I thought.
Disclaimer: We spend hours researching and writing our articles and strive to provide accurate, up-to-date content. However, our research is meant to aid your own, and we are not acting as licensed professionals. We recommend that you consult with your own lawyer, accountant, or other licensed professional for relevant business decisions. Click here to see our full disclaimer.
Product or company names, logos, and trademarks referred to on this site belong to their respective owners.