Fill - Free fillable Form 5305A-SEP Salary Reduction Simplified Employee Pension PDF form

OMB No. 1545-1012

5305A-SEPForm

(Rev. June 2006)

Do not file

with the Internal

Revenue Service

Department of the Treasury

Internal Revenue Service

(Under section 408(k) of the Internal Revenue Code)

amends its salary reduction SEP by adopting the following Model Salary Reduction

SEP under Internal Revenue Code section 408(k) and the instructions to this form.

Article I—Eligibility Requirements (check applicable boxes—see instructions)

Provided the requirements of Article III are met, the employer agrees to permit elective deferrals to be made in each calendar year to the

individual retirement accounts or individual retirement annuities (IRAs), established by or for all employees who are at least years old

(not to exceed 21 years) and have performed services for the employer in at least years (not to exceed 3 years) of the immediately

preceding 5 years. This simplified employee pension (SEP) includes does not include employees covered under a collective

bargaining agreement, includes does not include certain nonresident aliens, and includes does not include employees

whose total compensation during the year is less than $450*.

Article II—Elective Deferrals (see instructions)

A. Salary Reduction Amount. An eligible employee may elect to have his or her compensation reduced by a specified percentage or amount

per pay period, as designated in writing to the employer.

Article III—SEP Requirements (see instructions)

The employer agrees that each employee’s elective deferrals to the SEP will be:

B. Limited annually to the smaller of: (1) 25% of compensation; or (2) the section 402(g) limit for the tax year.

C. Limited further, under section 415, if the employer makes nonelective contributions to this or another SEP.

D. Paid to the employee’s IRA trustee, custodian, or insurance company (for an annuity contract) or, if necessary, an IRA established for an

employee by the employer.

E. Made only if at least 50% of the employer’s employees eligible to participate elect to have amounts contributed to the SEP. If the 50%

requirement is not satisfied as of the end of any calendar year, then all of the elective deferrals made by the employees for that calendar year

will be considered “disallowed deferrals” (IRA contributions that are not SEP-IRA contributions).

F. Made only if the employer had 25 or fewer employees eligible to participate at all times during the prior calendar year.

G. Adjusted only if deferrals to this SEP for any calendar year do not meet the “deferral percentage limitation” described on page 3.

Article IV—Excess SEP Contributions (see instructions)

Article VI—Top-Heavy Requirements (see instructions)

A. Unless paragraph B is checked, the employer will satisfy the top-heavy requirements of section 416 by making a minimum contribution each

year to the SEP-IRA of each employee eligible to participate in this SEP (other than a key employee as defined in section 416(i)). This

contribution, in combination with other nonelective contributions, if any, is equal to the smaller of 3% of each eligible nonkey employee’s

compensation or a percentage of such compensation equal to the percentage of compensation at which elective (not including catch-up elective

deferral contributions) and nonelective contributions are made under this SEP (and any other SEP maintained by the employer) for the year for

the key employee for whom such percentage is the highest for the year.

Form 5305A-SEP (Rev. 6-2006)

A. Based only on the first $220,000* of compensation.

Name of employer

Cat. No. 64362R

B. Timing of Elective Deferrals. No deferral election may be based on compensation an eligible employee received, or had a right to receive,

before execution of the deferral election.

Elective deferrals by a “highly compensated employee” must satisfy the deferral percentage limitation under section 408(k)(6)(A)(iii). Amounts in

excess of this limitation will be deemed excess SEP contributions for the affected highly compensated employee or employees.

Article V—Notice Requirements (see instructions)

A. The employer will notify each highly compensated employee, by March 15 following the end of the calendar year to which any excess SEP

contributions relate, of the excess SEP contributions to the highly compensated employee’s SEP-IRA for the applicable year. The notification will

specify the amount of the excess SEP contributions, whether they must be withdrawn, the calendar year in which any excess contributions are

includible in income, and must provide an explanation of applicable penalties if the excess contributions that must be withdrawn are not

withdrawn on time.

B. The employer will notify each employee who makes an elective deferral to a SEP that, until March 15 after the year of the deferral, any

transfer or distribution from that employee’s SEP-IRA of SEP contributions (or income on these contributions) attributable to elective deferrals

made that year will be includible in income for purposes of sections 72(t) and 408(d)(1).

C. The employer will notify each employee by March 15 of each year of any disallowed deferrals to the employee’s SEP-IRA for the preceding

calendar year. Such notification will specify the amount of the disallowed deferrals and the calendar year in which those deferrals are includible

in income and must provide an explanation of applicable penalties if the disallowed deferrals are not withdrawn on time.

For Paperwork Reduction Act Notice, see page 7.

* This is the amount for 2006. For later years, the limit may be increased for cost-of-living adjustments. Increases, if any, to the amounts in this form that are subject

to cost-of-living adjustments (COLAs), are announced by the IRS in a news release, in the Internal Revenue Bulletin, and on the IRS website at www.irs.gov.

Note: An employer may not establish a salary reduction SEP after 1996.

Salary Reduction Simplified Employee Pension—

Individual Retirement Accounts

Contribution Agreement

Article VI—Top-Heavy Requirements (continued)

Employer’s signature Name and title

Page 2Form 5305A-SEP (Rev. 6-2006)

C. To satisfy the minimum contribution requirement under section 416, all nonelective SEP contributions will be taken into account but elective

deferrals will not be taken into account.

Article VII—Effective Date (see instructions)

This SEP will be effective upon adoption and establishment of IRAs for all eligible employees.

Section references are to the Internal Revenue

Code unless otherwise noted.

4. Are a state or local government or a

tax-exempt organization.

Use this form only if you intend to permit

elective deferrals to a SEP. If you want to

establish a SEP to which nonelective employer

contributions may be made, use Form

Completing the Agreement

1. You have completed all blanks on the

form.

Employers who have established a salary

reduction SEP using Form 5305A-SEP and

have provided each participant a copy of the

completed Form 5305A-SEP and the other

documents and disclosures described in

Instructions for the Employer and Instructions

for the Employee, are not required to file the

annual information returns, Forms 5500 or

5500-EZ, for the SEP. However, under Title I of

the Employee Retirement Income Security Act

of 1974 (ERISA), this relief from the annual

reporting requirements may not be available to

an employer who selects, recommends, or

influences its employees to choose IRAs into

which contributions will be made under the

SEP, if those IRAs are subject to provisions

that impose any limits on a participant’s ability

to withdraw funds (other than restrictions

imposed by the Code that apply to all IRAs).

For additional information on Title I

requirements, see the Department of Labor

regulations at 29 CFR 2520.104-49.

Purpose of Form

What Is A SEP?

When To Use Form 5305A-SEP

1. Have any leased employees as defined in

section 414(n)(2).

Instructions

Instructions for the Employer

2. Currently maintain any other qualified

retirement plan. This does not prevent you

from also maintaining a Model SEP (Form

5305-SEP) or other SEP to which either

elective or nonelective contributions are

made.

3. Have more than 25 employees eligible to

participate in the SEP at any time during the

prior calendar year. If you are a member of one

of the groups described in paragraph 2 under

Excess SEP Contributions—Deferral

Percentage Limitation on page 3, you may use

this SEP only if in the prior year there were

never more than 25 employees eligible to

participate in this SEP, in total, of all the

members of such groups, trades, or

businesses. In addition, all eligible employees

of all the members of such groups, trades, or

businesses must be eligible to make elective

deferrals to this SEP.

The information provided below is intended

to help you understand and administer the

elective deferral rules of your SEP.

A SEP is a written arrangement (a plan) that

provides you with an easy way to make

contributions towards your employees’

retirement income. Under a salary reduction

SEP, employees may choose whether or not to

make elective deferrals to the SEP or to

receive the amounts in cash. If elective

deferrals are made, you contribute the

amounts deferred by your employees directly

into a traditional individual retirement

arrangement (traditional IRA) set up by or for

each employee with a bank, insurance

company, or other qualified financial

institution. The traditional IRA, established by

or for an employee, must be one for which the

IRS has issued a favorable opinion letter or a

model traditional IRA published by the Service

as Form 5305, Traditional Individual

Retirement Trust Account, or Form 5305-A,

Traditional Individual Retirement Custodial

Account. It cannot be a SIMPLE IRA (an IRA

designed to accept contributions made under

a SIMPLE IRA Plan described in section

408(p)) or a Roth IRA. Adopting Form

5305A-SEP does not establish an employer

IRA described in section 408(c).

Do not use Form 5305A-SEP if you:

This SEP agreement is considered adopted

when:

Date

Forms and Publications You May

Use

An employer may need to use any of the

following forms or publications:

● Form W-2, Wage and Tax Statement.

b. A statement that traditional IRAs other

than the traditional IRAs into which employer

SEP contributions will be made may provide

different rates of return and different terms

concerning, among other things, transfers and

withdrawals of funds from the IRAs.

c. A statement that, in addition to the

information provided to an employee at the

time the employee becomes eligible to

participate, the administrator of the SEP must

furnish each participant within 30 days of the

effective date of any amendment to the SEP, a

copy of the amendment and a written

explanation of its effects.

d. A statement that the administrator will

give written notification to each participant of

any employer contributions made under the

● Form 5330, Return of Excise Taxes Related

to Employee Benefit Plans. Employers who

are liable for the 10% tax on excess

contributions use this form to pay the excise

tax.

2. You have given all eligible employees the

following information:

a. A copy of Form 5305A-SEP. Any

individual who in the future becomes eligible

to participate in this SEP must be given Form

5305A-SEP, upon becoming an eligible

employee.

● Pub. 560, Retirement Plans for Small

Business (SEP, SIMPLE, and Qualified Plans).

● Pub. 590, Individual Retirement

Arrangements (IRAs).

Form 5305A-SEP is a model salary reduction

simplified employee pension (SEP) used by an

employer to permit employees to make

elective deferrals to a SEP described in

section 408(k).

Note: SEPs permitting elective deferrals

cannot be established after 1996. If you

established a SEP before 1997 that permitted

elective deferrals, under current law you may

continue to maintain such SEP for years after

1996.

Deducting Contributions

You may deduct, subject to any applicable

limits, contributions made to a SEP. This SEP

is maintained on a calendar year basis, and

contributions to the SEP are deductible for

your tax year with or within which the

particular calendar year ends. See section

404(h). Contributions made for a particular tax

year and contributed by the due date of your

income tax return, including extensions, are

deemed made in that tax year and the

contributions are deductible if they would

otherwise be deductible had they actually

been contributed by the end of that tax year.

See Rev. Rul. 90-105, 1990-2 C.B. 69.

However, the deductibility of your

contributions may be limited if the

B. The top-heavy requirements of section 416 will be satisfied through contributions to nonkey employees’ SEP-IRAs under this employer’s

other SEP.

Do not file Form 5305A-SEP with the IRS.

Instead, keep it with your records.

5305-SEP, Simplified Employee

Pension—Individual Retirement Accounts

Contribution Agreement, or a nonmodel SEP

instead of, or in addition to, this form.

SEP to that participant’s IRA by the later of

January 31 of the year following the year for

which a contribution is made or 30 days after

the contribution is made.

If you used the March 2002 version of

Form 5305-A SEP for your SEP, you are not

required to use this version of the form.

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Page 3Form 5305A-SEP (Rev. 6-2006)

Elective Deferrals

You may permit your employees to make

elective deferrals through salary reduction

that, at the employee’s option, may be

contributed to the SEP or received by the

employee in cash during the year.

You must inform your employees how they

may make, change, or terminate elective

deferrals. You must also provide a form on

which they may make their deferral elections.

You may use the Model Salary Reduction

SEP Deferral Form (elective form) on page 5,

or a form that explains the information

contained in this form in a way that is written

to be understood by the average plan

participant.

Compensation, for purposes other than the

$450 rule (see Excludable Employees above),

is defined as wages under section 3401(a) for

income tax withholding at the source but

without regard to any rules that limit the

remuneration included in wages based on the

● The maximum an employee may elect to

defer under this SEP for a year is the smaller

of 25% of the employee’s compensation or

the limitation under section 402(g), as

explained below.

Note: The deferral limit is 25% of

compensation (minus any employer SEP

contributions, including elective deferrals).

Compute this amount using the following

formula: Compensation (before subtracting

employer SEP contributions)  20%.

Excess SEP Contributions—Deferral

Percentage Limitation

The amount each of your “highly

compensated employees” may contribute to a

salary reduction SEP is also limited by the

“deferral percentage limitation.” This is based

on the amount of money deferred, on

average, by your nonhighly compensated

employees. Deferrals made by a highly

compensated employee that exceed this

deferral percentage limitation for a calendar

year are considered “excess SEP

contributions” and must be removed from the

employee’s SEP-IRA, as discussed below,

unless the following exception applies.

Excess SEP contributions of a highly

compensated employee who is 50 or older

before the end of the calendar year do not

have to be removed from the employee’s

SEP-IRA to the extent the amount of the

excess SEP contributions is less than the

catch-up elective deferral contribution limit

(see Section 402(g) Limit above) reduced by

any catch-up elective deferral contributions

already made for the year.

The deferral percentage limitation for your

highly compensated employees is computed

by first averaging the “deferral percentages”

(defined below) for the eligible nonhighly

compensated employees for the year and

then multiplying this result by 1.25.

Excess Elective Deferrals

Amounts deferred for a year in excess of the

section 402(g) limit are considered “excess

elective deferrals” and are subject to the rules

described below.

The limit applies to the total elective

deferrals the employee makes for the

calendar year, from all employers, under the

following arrangements:

● Salary reduction SEPs under section

408(k)(6);

● Cash or deferred arrangements under

section 401(k);

● Salary reduction arrangements under

section 403(b); and

Thus, an employee may have excess

elective deferrals even if the amount deferred

under this SEP alone does not exceed the

section 402(g) limit.

SEP or arrangement has made excess

elective deferrals for a calendar year, the

employee must withdraw those deferrals by

April 15 following the calendar year to which

the deferrals relate. Deferrals not withdrawn

by April 15 will be subject to the IRA

contribution limits of sections 219 and 408

and may be considered excess contributions

to the employee’s IRA. For the employee,

these excess elective deferrals are subject to

a 6% tax on excess contributions under

section 4973. Income on excess elective

deferrals is includible in the employee’s

income in the year it is withdrawn from the

IRA. The income must be withdrawn by April

15, following the calendar year for which the

deferrals were made. If the income is

withdrawn after that date and the recipient is

not 59

⁄2 years of age, it may be subject to

the 10% tax on early distributions under

section 72(t).

● If you make nonelective contributions to

this SEP for a calendar year, or maintain any

other SEP to which contributions are made

for that calendar year, then contributions to

all such SEPs may not exceed the smaller of

$44,000 (this is the amount for 2006; for later

years, it may be increased for cost-of-living

adjustments) or 25% of compensation for any

employee.

Eligible Employees

All eligible employees must be allowed to

participate in the SEP. An eligible employee is

any employee who: (1) is at least 21 years

old, and (2) has performed “service” for you

in at least 3 of the immediately preceding 5

years.

Effective Date

Insert the date the provisions of this

agreement are effective.

Service means any work performed for you

for any period of time, however short. If you

are a member of an affiliated service group, a

controlled group of corporations, or trades or

businesses under common control, service

includes any work performed for any period

of time for any other member of such group,

trades, or businesses.

Excludable Employees

The following employees do not have to be

covered by the SEP: (1) employees covered

by a collective bargaining agreement whose

retirement benefits were bargained for in

good faith by you and their union, (2)

nonresident alien employees who did not earn

U.S. source income from you, and (3)

employees who received less than $450 (this

is the amount for 2006; for later years, it may

be increased for cost-of-living adjustments) in

compensation during the year.

You can establish less restrictive eligibility

requirements, but not more restrictive ones.

● SIMPLE IRA Plans under section 408(p).

Section 402(g) limits the maximum amount of

compensation an employee may elect to

defer under a SEP (and certain other

arrangements) during the calendar year. This

limit is $15,000 for 2006 and later years. After

2006, the $15,000 amount may be increased

for cost-of-living adjustments. In the case of

an eligible employee who is 50 or older

before the end of the calendar year, an

additional amount of compensation

(“catch-up elective deferral contributions”)

may be deferred during the year. The limit on

catch-up elective deferral contributions is

$5,000 for 2006 and later years. After 2006,

the $5,000 amount may be increased for

cost-of-living adjustments.

Notwithstanding any limit in Article IIIB(1) or

IIIC, an eligible employee who is 50 or older

before the end of the calendar year can defer

an additional amount of compensation during

the year up to the catch-up elective deferral

contribution limit (see Section 402(g) Limit

below).

Section 402(g) Limit

● Catch-up elective deferral contributions

(see Section 402(g) Limit below) are not

subject to the 25% limit.

Only elective deferrals are included in this

computation. Nonelective SEP contributions

may not be included. The determination of

the deferral percentage for any employee is

made under section 408(k)(6).

For purposes of this computation, the

calculation of the number and identity of

highly compensated employees, and their

deferral percentages, is made on the basis of

the entire “affiliated employer” (defined

below).

SEP Requirements

● Elective deferrals may not be based on

more than $220,000 of compensation (this is

the amount for 2006; for later years, it may be

increased for cost-of-living adjustments).

contributions are excess contributions. See

Excess SEP Contributions—Deferral

Percentage Limitation on page 3 and the

Deferral Percentage Limitation Worksheet on

page 8.

nature or location of the employment or the

services performed (such as the exception for

agricultural labor in section 3401(a)(2)).

Compensation also includes earned income

under section 401(c)(2). Compensation does

not include any employer SEP contributions,

including elective deferrals. Compensation, for

purposes of the $450 rule, is the same, except

it includes deferrals made to this SEP and any

amount not includible in gross income under

section 125 or section 132(f)(4).

If an employee who elects to defer

compensation under this SEP and any other

The following definitions apply for purposes

of computing the deferral percentage

limitation under this SEP:

A worksheet is provided on page 8 to

assist in figuring the deferral percentage. You

may want to photocopy it for yearly use.

1. Deferral percentage is the ratio

(expressed as a percentage to 2 decimal

places) of an employee’s elective deferrals for

a calendar year to the employee’s

compensation for that year. For this purpose,

an employee’s elective deferrals does not

include any catch-up elective deferral

Page 4Form 5305A-SEP (Rev. 6-2006)

If you do not notify any of your employees

by March 15 of an excess SEP contribution

that must be withdrawn, you must pay a 10%

tax on such excess SEP contribution for the

preceding calendar year. The tax is reported in

Part VIII of Form 5330. If you do not notify your

employees by December 31 of the calendar

year following the calendar year in which the

Your notification to each affected employee

of the excess SEP contributions must

specifically state in a manner written to be

understood by the average employee:

● The calendar year in which the excess SEP

contributions that must be withdrawn are

includible in gross income; and

● Information stating that the employee must

withdraw the excess SEP contributions that

must be withdrawn (and allocable income)

from the SEP-IRA by April 15 following the

calendar year of notification by the employer.

Excess contributions not withdrawn by April

15 following the year of notification will be

subject to the IRA contribution limits of

sections 219 and 408 for the preceding

calendar year and may be considered excess

contributions to the employee’s IRA. For the

employee, the excess contributions may be

subject to the 6% tax on excess contributions

under section 4973. If income allocable to an

excess SEP contribution is not withdrawn by

April 15 following the calendar year of

notification by the employer, the employee

may be subject to the 10% tax on early

distributions under section 72(t) when

withdrawn.

For information on reporting excess SEP

contributions that must be withdrawn, see

Notice 87-77, 1987-2 C.B. 385, Notice 88-33,

1988-1 C.B. 513, Notice 89-32, 1989-1 C.B.

671, and Rev. Proc. 91-44, 1991-2 C.B. 733.

To avoid the complications caused by

excess SEP contributions, you may want to

monitor elective deferrals on a continuing

basis throughout the calendar year to insure

that the deferrals comply with the limits as

they are paid into each employee’s SEP-IRA.

Disallowed Deferrals

If you determine at the end of any calendar

year that more than half of your eligible

employees have chosen not to make elective

deferrals for that year, then all elective

deferrals made by your employees for that

year will be considered disallowed deferrals,

for example, IRA contributions that are not

SEP-IRA contributions.

Your notification to each affected employee

of the disallowed deferrals must clearly state:

● The amount of the disallowed deferrals;

● The calendar year in which the disallowed

deferrals and earnings are includible in gross

income; and

Disallowed deferrals should be reported the

same way excess SEP contributions are

reported.

Restrictions on Withdrawals

Your highly compensated employees may not

withdraw or transfer from their SEP-IRAs any

SEP contributions (or income on these

contributions) attributable to elective deferrals

made for a particular calendar year until

March 15 of the following year. Before that

date, however, you may notify your

employees when the deferral percentage

limitation test has been completed for a

particular calendar year and that this

withdrawal restriction no longer applies. In

general, any transfer or distribution made

before March 15 of the following year (or

notification, if sooner) will be includible in the

employee’s gross income and the employee

may also be subject to a 10% tax on early

withdrawal. This restriction does not apply to

an employee’s excess elective deferrals.

Top-Heavy Requirements

Elective deferrals may not be used to satisfy

the minimum contribution requirement under

section 416. In any year in which a key

employee makes an elective deferral, this

SEP is deemed top-heavy for purposes of

section 416, and you are required to make a

minimum top-heavy contribution under either

this SEP or another SEP for each nonkey

employee eligible to participate in this SEP.

A key employee under section 416(i)(1) is

any employee who, at any time during the

preceding year was:

● An officer of the employer with

compensation greater than $140,000 (this is

the amount for 2006; for later years, it may be

increased for cost-of-living adjustments);

● A 5% owner of the employer, as defined in

section 416(i)(1)(B)(i); or

● A 1% owner of the employer with

compensation greater than $150,000.

3. A highly compensated employee is an

individual described in section 414(q) who:

2. Affiliated employer includes (a) any

corporation that is a member of a controlled

group of corporations, described in section

414(b) that includes the employer, (b) any

trade or business that is under common

control, defined in section 414(c) with the

employer, (c) any organization that is a

member of an affiliated service group, defined

in section 414(m) that includes the employer,

and (d) any other entity required to be

aggregated with the employer under

regulations under section 414(o).

Excess SEP Contributions—

Notification

You must notify each affected employee, if

any, by March 15 of the amount of any excess

SEP contributions made to that employee’s

SEP-IRA for the preceding calendar year and

what amount must be withdrawn. If needed,

use the model form on page 5 of these

instructions. Excess SEP contributions that

must be withdrawn are includible in the

employee’s gross income in the preceding

calendar year. However, if these excess SEP

contributions (not including allocable income)

total less than $100, then the excess

contributions that must be withdrawn are

includible in the employee’s gross income in

the calendar year of notification. Income

allocable to these excess SEP contributions is

includible in gross income in the year of

withdrawal from the IRA.

b. For the preceding year had compensation

in excess of $95,000 (if the preceding year

was 2005, $100,000 if the preceding year was

2006) and was in the top-paid group (the top

20% of employees, by compensation). For

later years, the amount may be increased for

cost-of-living adjustments.

a. Was a 5% owner defined in section

416(i)(1)(B)(i) during the current or preceding

year; or

● The amount of the excess SEP

contributions attributable to that employee’s

elective deferrals;

● The amount of these excess SEP

contributions that must be withdrawn;

contributions that exceed the limit in Article

IIIB(1) or IIIC or the section 402(g) limit

applicable to employees under 50. No more

than $220,000 (this is the amount for 2006; for

later years, it may be increased for

cost-of-living adjustments) of compensation

per individual is taken into account. The

deferral percentage of an employee who is

eligible to make an elective deferral, but who

does not make a deferral during the year, is

zero. If a highly compensated employee also

makes elective deferrals under another salary

reduction SEP maintained by the employer,

then the deferral percentage of that highly

compensated employee includes elective

deferrals made under the other SEP.

You must notify each affected employee by

March 15 that the employee’s deferrals for

the previous calendar year are no longer

considered SEP-IRA contributions. Such

disallowed deferrals are includible in the

employee’s gross income in that preceding

calendar year. Income allocable to the

disallowed deferrals is includible in the

employee’s gross income in the year of

withdrawal from the IRA.

● That the employee must withdraw the

disallowed deferrals (and allocable income)

from the IRA by April 15 following the

calendar year of notification by the employer.

Those disallowed deferrals not withdrawn by

April 15 following the year of notification will

be subject to the IRA contribution limits of

sections 219 and 408 and thus may be

considered an excess contribution to the

employee’s IRA. For the employee, these

disallowed deferrals may be subject to the

6% tax on excess contributions under section

4973. If income allocable to a disallowed

deferral is not withdrawn by April 15 following

the calendar year of notification by the

employer, the employee may be subject to

the 10% tax on early distributions under

section 72(t) when withdrawn.

excess SEP contributions arose, the SEP no

longer will be treated as meeting the rules of

section 408(k)(6). In this case, any

contribution to an employee’s IRA will be

subject to the IRA contribution limits of

sections 219 and 408 and thus may be

considered an excess contribution to the

employee’s IRA.

The deferral election specified in I above shall not become effective before . Specify

a date no earlier than the first day of the first pay period beginning after this authorization.

Page 5Form 5305A-SEP (Rev. 6-2006)

Model Salary Reduction SEP Deferral Form

I. Salary reduction deferral

(name of employer)

Subject to the requirements of the Model Salary Reduction SEP of , I authorize the

following amount or percentage to be withheld from each of my paychecks and contributed to my SEP-IRA:

(a) % (not to exceed 25%) of my salary; or (b) $.

This salary reduction authorization shall remain in effect until I provide written modification or termination of its terms to my employer.

II. Amount of deferral

I understand that the total amount I defer in any calendar year may not exceed the smaller of:

III. Commencement of deferral

(Month, day, year)

Date

䊳

Signature of employee

䊳

Notification of Excess SEP Contributions

To:

(name of employee)

Our calculations indicate that the elective deferrals you made to your SEP-IRA for calendar year exceed the maximum

permissible limits under section 408(k)(6), and that $ must be withdrawn from your SEP-IRA.

These excess SEP contributions are includible in your gross income for the (insert the year identified above, or if less

than $100, the following year) calendar year.

These excess SEP contributions must be distributed from your SEP-IRA by April 15, 20 (insert year after the calendar

year in which this notice is given) in order to avoid possible penalties. Income allocable to the excess amounts must be withdrawn at

the same time and is includible in income in the year of withdrawal. Excess SEP contributions remaining in your SEP-IRA account after

that time are subject to a 6% excise tax, and the income on these excess SEP contributions may be subject to a 10% penalty when

finally withdrawn.

Signature of employer

䊳

Date

䊳

IV. Distributions from SEP-IRAs

I understand that I should not withdraw or transfer any amounts from my SEP-IRA that are attributable to elective deferrals and income

on elective deferrals for a particular calendar year (except for excess elective deferrals) until March 15 of the subsequent year or, if

sooner, when my employer notifies me that the deferral percentage limitation test for that plan year has been completed. Any such

amounts that I withdraw or transfer before this time will be includible in income for purposes of sections 72(t) and 408(d)(1).

Form 5305A-SEP (Rev. 6-2006)

(a) 25% of my compensation (determined without including any SEP-IRA contributions); or (b) the section 402(g) limit for the year.

You made total excess contributions for the year of $ . This amount may be different from the amount you have to

withdraw if you have unused catch-up elective deferral contributions under this SEP for the year.

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Page 6Form 5305A-SEP (Rev. 6-2006)

Instructions for the Employee

What Is A SEP?

A SEP is a written arrangement (a plan) that

allows an employer to make contributions

toward your retirement without becoming

involved in more complex retirement plans. A

SEP may include a salary reduction

arrangement, like the one provided on this

form. Under this arrangement, you can elect to

have your employer contribute part of your pay

to your own traditional individual retirement

account or annuity (traditional IRA), set up by

you or on your behalf with a bank, insurance

company, or other qualified financial

institution. The part contributed is tax

deferred. Only the remaining part of your pay

is currently taxable. This type of SEP is

available only to an employer with 25 or fewer

eligible employees.

Your employer must provide you with a

copy of the SEP agreement containing

eligibility requirements and a description of the

basis upon which contributions may be made.

All amounts contributed to your IRA belong

to you, even after you quit working for your

employer.

Elective Deferrals

The maximum amount that you may defer to a

SEP for a calendar year is limited to the

smaller of 25% of compensation or the section

402(g) limit. The 25% limit is reduced if your

employer makes nonelective contributions on

your behalf to this or another SEP for the year.

In that case, the total contributions on your

behalf to all such SEPs may not exceed the

smaller of $44,000 (this is the amount for

2006; for later years, it may be increased for

cost-of-living adjustments) or 25% of

compensation.

For a highly compensated employee, there

may be a further limit on the amount you can

defer. Figured by your employer and known

as the deferral percentage limitation, it limits

the percentage of pay that a highly

compensated employee can elect to defer to

a SEP-IRA. Your employer will notify any

highly compensated employee who has

exceeded the limitation.

Tax Treatment

Elective deferrals that do not exceed the

limits discussed above are excluded from

your gross income in the year of the deferral.

They are not included as taxable wages on

Form W-2, Wage and Tax Statement.

However, elective deferrals are treated as

wages for social security, Medicare, and

unemployment (FUTA) tax purposes.

Excess Amounts

There are three situations which will result in

excess amounts in a salary reduction

SEP-IRA.

1. Making excess elective deferrals (for

example, amounts in excess of the section

402(g) limit). You must determine whether you

have exceeded the limit in the calendar year.

2. Highly compensated employees who

make excess SEP contributions (for example,

amounts in excess of the deferral percentage

limitation referred to above). The employer

must determine if an employee has made

excess SEP contributions.

3. Having disallowed deferrals (for example,

more than half of your employer’s eligible

employees choose not to make elective

deferrals for a year). All elective deferrals

made by employees for that year are

considered disallowed deferrals, as discussed

below. Your employer must also determine if

there are disallowed deferrals.

Excess Elective Deferrals

Excess elective deferrals are includible in your

gross income in the calendar year of deferral.

Income earned on the excess elective

deferrals is includible in the year of

withdrawal from the IRA. You should

withdraw excess elective deferrals and any

allocable income by April 15 following the

year to which the deferrals relate. These

amounts may not be transferred or rolled over

tax-free to another IRA.

Income earned on excess elective deferrals

is includible in your gross income in the year

you withdraw it from your IRA. The income

should be withdrawn by April 15 following the

calendar year in which the deferrals were

made. If the income is withdrawn after that

date and you are not 59

⁄2 years of age, it

may be subject to the 10% tax on early

distributions. Report the tax in Part I of Form

5329. Also see Pub. 590 for a discussion of

exceptions to the age 59

⁄2 rule.

Excess SEP Contributions

If you are a highly compensated employee,

you may have excess SEP contributions for a

calendar year that may have to be withdrawn

from your SEP-IRA. If you have excess SEP

contributions that do not have to be

withdrawn (because you had unused

catch-up elective deferral contributions), the

following rules on including the contributions

in income, withdrawing the contributions, and

penalties if you don’t withdraw them do not

apply to these excess SEP contributions.

Your employer must notify you of any excess

contributions, whether or not they must be

withdrawn. This notification should show the

amount of the excess SEP contributions, the

amount that must be withdrawn, the calendar

year to include any excess contributions in

income, and the penalties that may be

assessed if the contributions that must be

withdrawn are not withdrawn from your IRA

within the applicable time period.

Your employer must notify you of the

excess SEP contributions by March 15

following the calendar year for which you

made the excess SEP contributions.

Generally, you include the excess SEP

contributions in income for the calendar year

in which you made the original deferrals. This

may require you to file an amended individual

income tax return. However, any excess SEP

contribution less than $100 (not including

allocable income) must be included in income

in the calendar year of notification. Income

earned on these excess contributions must

be included in your gross income when you

withdraw it from your IRA.

The following instructions explain what a

simplified employee pension (SEP) is, how

contributions to a SEP are made, and how to

treat these contributions for tax purposes. For

more information, see the SEP agreement on

pages 1 and 2 and the Instructions for the

Employer beginning on page 2.

Forms and Publications You May

Use

An employee may use either of the two forms

and the publications listed below.

● Form 5329, Additional Taxes on Qualified

Plans (including IRAs) and Other Tax-Favored

Accounts. Use Form 5329 to pay tax on

excess contributions and/or tax on early

distributions.

● Form 8606, Nondeductible IRAs. Use Form

8606 to report nondeductible IRA

contributions.

The traditional IRA must be one for which

the IRS has issued a favorable opinion letter or

a model traditional IRA published by the IRS

as Form 5305, Traditional Individual

Retirement Trust Account, or Form 5305-A,

Traditional Individual Retirement Custodial

Account. It cannot be a SIMPLE IRA (an IRA

designed to accept contributions made under

a SIMPLE IRA Plan described in section

408(p)) or a Roth IRA.

You must withdraw these excess SEP

contributions (and allocable income) from

your IRA. You may withdraw these amounts

without penalty, until April 15 following the

calendar year in which you were notified by

your employer of the excess SEP

contributions. Otherwise, the excess SEP

contributions are subject to the IRA

contribution limits of sections 219 and 408

and will be considered an excess contribution

to your IRA. Thus, the excess SEP

contributions are subject to a 6% excise tax

reportable in Part III of Form 5329 for each

year the contributions remain in your IRA.

Annual Limitation

● Pub. 590, Individual Retirement

Arrangements (IRAs).

Section 402(g) limits the maximum amount of

compensation you can defer in each calendar

year to all salary reduction SEPs, SIMPLE IRA

plans under section 408(p), section 403(b)

salary reduction arrangements, and cash or

deferred arrangements under section 401(k),

regardless of the number of employers you

may have worked for during the year. This

limit is $15,000 for 2006 and later years. After

2006, the $15,000 amount may be increased

for cost-of-living adjustments. If you are 50 or

older before the end of the calendar year, you

can defer an additional amount of

compensation (“catch-up elective deferral

contributions”) during the year. The limit on

catch-up elective deferral contributions is

$5,000 for 2006 and later years. After 2006,

the $5,000 amount may be increased for

cost-of-living adjustments.

Section 402(g) Limit

If you do not withdraw excess elective

deferrals and any allocable income by April

15, the excess elective deferrals will be

subject to the IRA contribution limits of

sections 219 and 408 and will be considered

excess contributions to your IRA. Such

excess deferrals are subject to a 6% excise

tax for each year they remain in the SEP-IRA.

The excise tax is reported in Part III of Form

5329.

If you do not withdraw the income earned

on the excess SEP contributions by April 15

following the calendar year of notification by

your employer, the income may be subject to

● Pub. 560, Retirement Plans for Small

Business (SEP, SIMPLE, and Qualified Plans).

Income Allocable To Excess

Amounts

The rules for determining and allocating

income to excess elective deferrals, excess

SEP contributions, and disallowed deferrals

are the same as those governing regular IRA

contributions. The trustee or custodian of

your SEP-IRA will inform you of the income

allocable to these amounts.

IRA Contribution for SEP

Participants

In addition to any SEP amounts, you may

make regular IRA contributions to an IRA.

However, the amount of your contribution that

you may deduct on your income tax return is

subject to various income limits. See Form

8606. Also, you may want to see Pub. 590.

SEP-IRA Amounts—Rollover or

Transfer To Another IRA

If you are a highly compensated employee,

you may not withdraw or transfer from your

SEP-IRA any SEP contributions (or income on

If the restrictions above do not apply, you

may withdraw funds from your SEP-IRA and

no more than 60 days later place those funds

in the same or another IRA, but not in a

SIMPLE IRA. This is called a “rollover” and

can be done without penalty only once in any

1-year period. However, there are no

restrictions on the number of times that you

may make “transfers” if you arrange to have

these funds transferred between the trustees

or the custodians so that you never have

possession of the funds.

You may not, however, roll over or transfer

excess elective deferrals, excess SEP

contributions, or disallowed deferrals from

your SEP-IRA to another IRA. These amounts

may be reduced only by a distribution to you.

Employer To Provide Information on

SEP-IRAs and Form 5305A-SEP

Your employer must give you a copy of the

following information:

Financial Institution Requirements

The financial institution where your IRA is

maintained must provide you with a

1. The law that relates to your IRA.

2. The tax consequences of various options

concerning your IRA.

3. Participation eligibility rules, and rules on

the deductibility of retirement savings.

4. Situations and procedures for revoking

your IRA, including the name, address, and

telephone number of the person designated

to receive notice of revocation. (This

information must be clearly displayed at the

beginning of the disclosure statement.)

5. A discussion of the penalties that may

be assessed because of prohibited activities

concerning the IRA.

6. Financial disclosure that provides the

following information.

a. Projects value growth rates of the IRA

under various contribution and retirement

schedules, or describes the method of

computing and allocating annual earnings and

charges that may be assessed.

b. Describes whether, and for what period,

the growth projections are guaranteed, or a

statement of earnings rate and the terms on

which these projections are based.

c. States the sales commission to be

charged in each year expressed as a

percentage of $1,000.

In addition, the financial institution must

provide you with a financial statement each

year. You may want to keep these statements

to evaluate your IRA’s investment

performance and to report IRA distributions

for tax purposes.

Page 7Form 5305A-SEP (Rev. 6-2006)

1. A copy of a completed Form

5305A-SEP, the Model Salary Reduction SEP

Deferral Form (used to defer amounts to the

SEP), and, if applicable, a copy of the Notice

of Excess SEP Contributions. Your employer

should also provide you with a statement of

any contributions made during the calendar

year to your SEP-IRA. Highly compensated

employees must also be notified at the time

the deferral percentage limitation test is

completed.

2. A statement that traditional IRAs other

than SEP-IRAs receiving contributions under

this SEP may have different rates of return

and different terms (for example, transfers

and withdrawals from the IRAs).

3. A statement that the administrator of an

amended SEP must furnish to each

participant within 30 days of the amendment,

a copy of the amendment and an explanation

of its effects.

4. A statement that the administrator must

notify each participant in writing of any

employer contributions to the SEP-IRA. The

notification must be made by the later of

January 31 following the year of the

contribution or 30 days after the contribution

is made.

Additional Top-Heavy Contributions

If you are not a key employee, your employer

must make an additional contribution to your

SEP-IRA for a year in which the SEP is

considered “top heavy.” (Your employer can

tell you if you are a key employee. Also, see

Top-Heavy Requirements on page 4 for the

definition of a key employee.) This additional

contribution will not exceed 3% of your

compensation. It may be less if your employer

has already made a contribution to your

SEP-IRA, and for certain other reasons.

Disallowed deferrals and any income the

deferrals have earned may be withdrawn,

without penalty until April 15 following the

calendar year in which you are notified of the

disallowed deferrals. Amounts left in the IRA

after that date will be subject to the same

penalties discussed in Excess SEP

Contributions above.

Paperwork Reduction Act Notice. You are

not required to provide the information

requested on a form that is subject to the

Paperwork Reduction Act unless the form

displays a valid OMB control number. Books

or records relating to a form or its instructions

must be retained as long as their contents

may become material in the administration of

any Internal Revenue law. Generally, tax

returns and return information are

confidential, as required by section 6103.

Recordkeeping

4 hr., 29 min.

Learning about the

law or the form

5 hr., 1 min.

Preparing the form

58 min.

If you have comments concerning the

accuracy of these time estimates or

suggestions for making this form simpler, we

would be happy to hear from you. You can

write to the Internal Revenue Service, Tax

Products Coordinating Committee,

SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave.

NW, IR-6406, Washington, DC 20224. Do not

send this form to this address. Instead, keep

it for your records.

The time needed to complete this form will

vary depending on individual circumstances.

The estimated average time is:

Disallowed Deferrals

You are not required to make elective

deferrals to a SEP-IRA. However, if more than

50% of your employer’s eligible employees

choose not to make elective deferrals in a

calendar year, then no employee may

participate for that calendar year. If you make

elective deferrals during a year in which this

happens, then your deferrals for that year will

be “disallowed,” and the deferrals will be

treated as ordinary IRA contributions (which

may be excess IRA contributions) rather than

SEP-IRA contributions.

a 10% tax on early distributions if you are not

⁄2 years of age when you withdraw it.

Report the tax in Part I of Form 5329. Also

see Pub. 590.

If you have both excess elective deferrals

and excess SEP contributions, the amount

of excess elective deferrals that you withdraw

by April 15 will reduce any excess SEP

contributions that must be withdrawn for the

corresponding calendar year.

these contributions) attributable to elective

deferrals made during the year until March 15

of the following year or, if sooner, at the time

your employer notifies you that the deferral per-

centage limitation test (discussed under Annual

Limitation on page 6) has been completed for

that year. In general, any transfer or distribution

made before this time is includible in your gross

income and may also be subject to a 10% tax

on early distribution. Report this tax in Part I of

Form 5329. You may, however, remove excess

elective deferrals from your SEP-IRA before this

time but you may not roll over or transfer these

deferrals to another IRA.

disclosure statement that contains the

following information in plain, nontechnical

language:

Page 8Form 5305A-SEP (Rev. 6-2006)

Deferral Percentage Limitation Worksheet (see instructions on page 3)

(f) Permitted

ratio

(for HCE* only, see

below)

(e) Ratio

(d)  (c)

(d) Deferrals

(see below)

(b) Status

H = HCE

O = Other

(g) Permitted

amount

(for HCE* only)

(h) Excess

(for HCE* only)

(d) minus (g)

(a) Employee Name

Column (f). Permitted ratio.

A Enter the total of the ratios in column (e) for the employees marked as “O” in column (b)

B Divide line A by the number of employees marked as “O” in column (b)

C Permitted ratio. Multiply line B by 1.25 and enter the permitted ratio here

* Highly compensated employee. See the definition on page 4.

Column (c). Compensation. Enter compensation from this employer and any related employers.

Column (d). Deferrals. Enter all SEP elective deferrals other than catch-up elective deferral contributions. See Deferral percentage on page 3.

Column (h). Excess. Amounts in this column may have to be withdrawn by the HCE. See instructions on page 3.

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