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 Business owners can use a SEP to reward employees with profit-sharing contributions that aren’t taxed until withdrawn.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.