Flat dollar contribution to a SEP IRA to meet the maximum
someone asked me of there was a flat dollar contribution that can be made to SEP IRA . Have you heard of that? is that possible? what is the maximum? $46000.00 or 25% of the compensation to max compensation of $230,000.00. Please advise
Permalink Submitted by BruceM on Thu, 2008-12-04 00:45
The only contribution requirement is that it be non-discriminatory. I’ve never heard of a flat $ contribution to eligible employee’s SEP IRA’s…typically, its a % of covered compensation, which can be as high as 25% for employees. But all employees who are eligible (21 or older and who’ve worked for the employer in any 3 of the past 5 years and are expected to earn at least $500 in the current year) must receive the contribution, even if they left employment or were fired.
BruceM
Permalink Submitted by Denise Appleby on Fri, 2008-12-05 00:29
Hi Bruce,
A SEP IRA can include a flat dollar formula, where each eligible participant receives the same dollar amount as contributions. This option is available only if allowed under the SEP adoption agreement and is considered nondiscriminatory. PLRs 8824019, 8441067
The [url=http://www.retirementdictionary.com/Compensation-Cap.htm%5Dcompensation cap[/url], [url=http://www.retirementdictionary.com/annual-addition-limit.htm%5Dannual addition[/url] limit and 25% per participant limit applies.
Permalink Submitted by BruceM on Fri, 2008-12-05 01:02
Thanks Denise
Does the IRS model 5305-SEP allow for the flat dollar contribution, or must this be a custom (or prototype) SEP with its own adoption agreement?
BruceM
Permalink Submitted by Denise Appleby on Fri, 2008-12-05 05:12
You’re welcome Bruce,
It would have to be a prototype or custom/individually-designed SEP Agreement.
Denise