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.
click to sign
signature
click to edit
dd mmm yyyy
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
1
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
Signature of employee
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
Date
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.
dd mmm yyyy
click to sign
signature
click to edit
click to sign
signature
click to edit
dd mmm yyyy
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
1
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
1
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
59
1
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)
(c) Compensation
(see below)
(b) Status
H = HCE
*
O = Other
(g) Permitted
amount
(for HCE* only)
(c) (f)
(h) Excess
(for HCE* only)
(d) minus (g)
(a) Employee Name
1
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.
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25