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Form 5305-SEP SIMPLIFIED EMPLOYEE PENSION-INDIVIDUAL OMB No. 1545-049
(Rev. January 1997) RETIREMENT ACCOUNTS CONTRIBUTION AGREEMENT DO NOT FILE WITH
THE INTERNAL
Department of Treasury (UNDER SECTION 408(K) OF THE INTERNAL REVENUE CODE) REVENUE SERVICE
Internal Revenue Service
______________________________________________ makes the following agreement
(Name of employer)
under section 408(k) of the Internal Revenue Code and the instructions to
this form.
ARTICLE I--ELIGIBILITY REQUIREMENTS (Check appropriate boxes--SEE INSTRUCTIONS.)
The employer agrees to provide for discretionary contributions in each calendar
year to the individual retirement account or individual retirement annuity (IRA)
of all employees who are at least _______ years old (not to exceed 21 years
old) 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 $400*.
ARTICLE II--SEP REQUIREMENTS (See INSTRUCTIONS.)
The employer agrees that contributions made on behalf of each eligible employee
will be:
A. Based only on the first $160,000* of compensation.
B. Made in an amount that is the same percentage of compensation of every
employee.
C. Limited annually to the smaller of $30,000* OR 15% of compensation.
X. Xxxx to the employee's IRA trustee, custodian, or insurance company (for an
annuity contract).
_____________________________________ ____________________________________
Employer's signature and date Name and title
________________________________________________________________________________
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 Code section 6103.
The time needed to complete this form will vary depending on individual
circumstances.
The estimated average time is:
RECORDKEEPING ..................................... 1 hr., 40 min.
LEARNING ABOUT THE LAW OR THE FORM ................ 1 hr., 35 min.
PREPARING THE FORM ................................ 1 hr., 41 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 Tax Forms Committee, Western Area Distribution Center,
Rancho Cordova, CA 95743-0001. DO NOT send this form to this address. Instead,
keep it for your records.
INSTRUCTIONS
Section references are to the Internal Revenue Code unless otherwise noted.
PURPOSE OF FORM
Form 5305-SEP (Model SEP) is used by an employer to make an agreement to provide
benefits to all eligible employees under a SEP described in section 408(k). DO
NOT file this form with the IRS. See PUB. 560, Retirement Plans for the
Self-Employed, and PUB 590, Individual Retirement Arrangements (IRAs).
INSTRUCTIONS TO THE EMPLOYER
SIMPLIFIED EMPLOYEE PENSION. -- A SEP is a written arrangement (a plan) that
provides you with a simplified way to make contributions toward your employees'
retirement income. Under a SEP, you can contribute to an employee's individual
retirement account or annuity (IRA). You make contributions directly to an IRA
set up by or for each employee with a bank, insurance company, or other
qualified financial institution. When using Form 5305-SEP to establish a SEP,
the IRA must be a Model IRA established on an IRS form or a master or
prototype IRA for which the IRS has issued a favorable opinion letter. Making
the agreement on Form 5305-SEP does not establish an employer IRA described in
section 408(c).
WHEN NOT TO USE FORM 5305-SEP.-- Do not use this form if you:
1. Currently maintain any other qualified retirement plan. This does
not prevent you from maintaining another SEP.
2. Previously maintained a defined benefit plan that is now
terminated.
3. Have any eligible employees for whom IRAs have not been
established.
4. Use the services of leased employees (described in section 414(n)).
5. Are a member of an affiliated service group (described in section
414(m)), a controlled group of corporations (described in section 414(b)), or
trades or businesses under common control (described in sections 414(c) and
414(o)), unless all eligible employees of all the members of such groups,
trades, or businesses, participate in the SEP.
6. Will not pay the cost of the SEP contributions. Do not use Form
5305-SEP for a SEP that provides for elective employee contributions even if
the contributions are made under a salary reduction agreement.
Use Form 5305A-SEP, or a nonmodel SEP if you permit elective deferrals
to a SEP.
NOTE: SEPs permitting elective deferrals cannot be established after 1996.
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.
NOTE: You can establish less restrictive eligibility requirements, but not more
restrictive ones.
Service is 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 $400* in compensation during the year.
CONTRIBUTION LIMITS. -- The SEP rules permit you to make an annual contribution
of up to 15% of the employee's compensation or $30,000*, whichever is less.
Compensation, for this purpose, does not include employer contributions to the
SEP or the employee's compensation in excess of $160,000*. If you also maintain
a Model Elective SEP or any
* This amount reflects the cost-of-living increase effective January 1, 1997.
The amount is adjusted annually. The IRS announces the increase, if any, in a
news release and in the Internal Revenue Bulletin.
Cat. No. 11825J Form 5305-SEP (Rev. 1-97)
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Form 5305-SEP (Rev. 1-97) Page 2
other SEP that permits employees to make elective deferrals, contributions to
the two SEPs together may not exceed the smaller of $30,000(1) or 15% of
compensation for any employee.
Contributions cannot discriminate in favor of highly compensated
employees. You are not required to make contributions every year. But you must
contribute to the SEP-IRAs of all of the eligible employees who actually
performed services during the year of the contribution. This includes eligible
employees who die or quit working before the contribution is made.
You may also not integrate your SEP contributions with, or offset them
by, contributions made under the Federal Insurance Contributions Act (FICA).
If this SEP is intended to meet the top-heavy minimum contribution
rules of section 416, but it does not cover all your employees who participate
in your elective SEP, then you must make minimum contributions to IRAs
established on behalf of those employees.
DEDUCTING CONTRIBUTIONS. -- You may deduct contributions to a SEP subject to the
limits of section 404(h). 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 calendar year ends. Contributions made for a particular tax year must be
made by the due date of your income tax return (including extensions) for that
tax year.
COMPLETING THE AGREEMENT. -- This agreement is considered adopted when;
* IRAs have been established for all your eligible employees;
* You have completed all blanks on the agreement form without modification;
and
* You have given all your eligible employees the following information:
1. A copy of Form 5305-SEP.
2. A statement that IRAs other than the 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.
3. 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.
4. A statement that the administrator will give written notification
to each participant of any employer contributions made under the 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.
Employers who have established a SEP using Form 5305-SEP and have
furnished each eligible employee with a copy of the completed Form 5305-SEP and
provided the other documents and disclosures described in INSTRUCTIONS TO THE
EMPLOYER and INFORMATION FOR THE EMPLOYEE, are not required to file the annual
information returns, Forms 5500, 5550-C/R, or 5500-EZ for the SEP. However,
under Title I of 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 regulation at 29 CFR 2520.104-48.
INFORMATION FOR THE EMPLOYEE
The information below explains what a SEP is, how contributions are made, and
how to treat your employer's contributions for tax purposes. For more
information, see Pub. 590.
SIMPLIFIED EMPLOYEE PENSION. -- A SEP is a written arrangement (a plan) that
allows an employer to make contributions toward your retirement. Contributions
are made to an individual retirement account/annuity (IRA). Contributions must
be made to either a Model IRA executed on an IRS form or a master or prototype
IRA for which the IRS has issued a favorable opinion letter.
An employer is not required to make SEP contributions. If a
contribution is made, it must be allocated to all the eligible employees
according to the SEP agreement. The Model SEP (Form 5305-SEP) specifies that
the contribution for each eligible employee will be the same percentage of
compensation (excluding compensation higher than $160,000(1)) for all employees.
Your employer will provide you with a copy of the agreement containing
participation rules and a description of how employer contributions may be made
to your IRA. Your employer must also provide you with a copy of the completed
Form 5305-SEP and a yearly statement showing any contributions to your IRA.
All amounts contributed to your IRA by your employer belong to you even
after you stop working for that employer.
CONTRIBUTION LIMITS. -- Your employer will determine the amount to be
contributed to your IRA each year. However, the amount for any year is limited
to the smaller of $30,000(1) or 15% of your compensation for that year.
Compensation does not include any amount that is contributed by your employer to
your IRA under the SEP. Your employer is not required to make contributions
every year or to maintain a particular level of contributions.
TAX TREATMENT OF CONTRIBUTIONS. -- Employer contributions to your SEP-IRA are
excluded from your income unless there are contributions in excess of the
applicable limit. Employer contributions within these limits will not be
included on your Form W-2.
EMPLOYEE CONTRIBUTIONS. -- You may contribute the smaller of $2,000 or 100% of
your compensation to an IRA. However, the amount you can deduct may be reduced
or eliminated because, as a participant in a SEP, you are covered by an
employer retirement plan.
SEP PARTICIPATION. -- If your employer does not require you to participate in a
SEP as a condition of employment, and you elect not to participate, all other
employees of your employer may be prohibited from participating. If one or more
eligible employees do not participate and the employer tries to establish a SEP
for the remaining employees, it could cause adverse tax consequences for the
participating employees.
An employer may not adopt this IRS Model SEP if the employer maintains
another qualified retirement plan or has ever maintained a qualified defined
benefit plan. This does not prevent your employer from adopting this IRS Model
SEP and also maintaining an IRS Model Elective SEP or other SEP. However, if you
work for several employers, you may be covered by a SEP of one employer and a
different SEP or pension or profit-sharing plan of another employer.
SEP-IRA AMOUNTS--ROLLOVER OR TRANSFER TO ANOTHER IRA. -- You can withdraw or
receive funds from your SEP-IRA if within 60 days of receipt, you place those
funds in another IRA or SEP-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 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.
WITHDRAWALS. -- You may withdraw your employer's contribution at any time, but
any amount withdrawn is includible in your income unless rolled over. Also, if
withdrawals occur before you reach age 59 1/2, you may be subject to a tax on
early withdrawal.
EXCESS SEP CONTRIBUTIONS. -- Contributions exceeding the yearly limitations may
be withdrawn without penalty by the due date (plus extensions) for filing your
tax return (normally April 15), but is includible in your gross income. Excess
contributions left in your SEP-IRA account after that time may have adverse tax
consequences. Withdrawals of those contributions may be taxed as premature
withdrawals.
FINANCIAL INSTITUTION REQUIREMENTS. -- The financial institution where your IRA
is maintained must provide you with a disclosure statement that contains the
following information in plain, nontechnical language:
1. The law that relates to your IRA.
2. The tax consequences of various options concerning your IRA.
3. Participation eligibilty 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 your IRA.
6. Financial disclosure that provides the following information:
A. Projects value growth rates of your IRA under various contribution
and retirement schedules, or describes the method of determining annual
earnings and charges that may be assessed.
B. Describes whether, and for when, the growth projections are
guaranteed, or a statement of the earnings rate and the terms on which the
projections are based.
C. States the sales commission for 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.
(1) This amount reflects the cost-of-living increase effective
January 1, 1997. The amount is adjusted annually. The IRS announces the
increase, if any, in a news release and in the Internal Revenue Bulletin.
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