SEP IRA: Business Information

What type of business are you modeling? Help Text

Note: If the sponsoring business is organized under state law as a limited liability corporation (LLC), the appropriate selection for this question will depend on whether the business files a federal return as a partnership (e.g., Form 1065) or as a corporation (e.g., Form 1120).

X

What type of business are you modeling? (Sole Proprietorship/Partnership or Corporation)

The way estimated contributions are calculated for a business owner who is eligible to participate in the plan is dictated by the way the sponsoring business is structured.

If the sponsoring business files its federal tax return as a sole proprietor or partnership (e.g., Schedule C, Schedule F or Form 1065), you should select "Sole Proprietorship/Partnership."

If the sponsoring business files its federal tax return as a corporate entity (e.g., Form 1120 or Form 1120- S), you should select "Corporation."

Note: If the sponsoring business is organized under state law as a limited liability corporation (LLC), the appropriate selection for this question will depend on whether the business files a federal return as a partnership (e.g., Form 1065) or as a corporation (e.g., Form 1120).

SEP IRA: Business Information

Does this business employ common-law employees? Help Text

For what tax year would you like to do contribution/coverage modeling? Help Text

X

Does this business employ common-law employees? (Yes/No)

A common-law employee is a person who performs services for an employer who has the right to control and direct the results of the work and the way in which it is done.

For example, the employer:

  • Provides the employee's tools, materials, and workplace; and
  • Can fire the employee.

When establishing a business retirement plan, a business must take into consideration all common-law employees when assessing who must be covered under the plan. Generally speaking, the sponsoring business must provide retirement plan coverage for those common-law employees who meet the plan’s age and service requirements. While there are specific circumstances under federal law where a business may exclude certain classes of employees from plan participation, a business may not arbitrarily ignore common-law employees when determining who will be eligible for coverage under a business retirement plan.

If you own multiple businesses, you may be required to cover all employees of all owned businesses under this plan. Review controlled group rules with your tax advisor.

X

For what tax year would you like to do contribution/coverage modeling?

Select the applicable tax year for which you would like to model plan coverage/contributions. The actual deadline for making contributions will depend upon the sponsoring business's filing deadline and plan year end.

SEP IRA: Eligibility Requirements

Age Requirement Help Text

 Or, No age requirement

Service Requirement Help Text

 Or, No service requirement
X

Age Requirement

When sponsoring a SEP plan, businesses may (but are not required to) impose a minimum age requirement (up to age 21, maximum) which individuals must meet to be eligible to participate in the retirement plan. Note that the minimum age requirement, if selected, applies to both business owners and common-law employees.

X

Service Requirement

When sponsoring a SEP plan, businesses may (but are not required to) impose a minimum service requirement which individuals must meet to be eligible to participate in the retirement plan. Note that a minimum service requirement, if selected, applies to both business owners and common-law employees. For SEP plans, an employer may require individuals to have worked for the business during up to three (3) of the immediately preceding five (5) years.

SEP IRA: Business Owner InformationHelp Text

X

Warning: Year of hire must be later than year of birth.

First
Name

Last
Initial

Year of Birth

Year of Hire

Estimated Self-Employment Earnings

Other Compensation?

$

+ Add Owners

Please check for valid dates. Valid dates include 1900 through the current year.
X

Business Owner Information

First Name: Enter the business owner's first name

Last Initial: Enter the first initial of the business owner’s last name

Year of Birth: Enter the business owner’s year of birth (YYYY)

Year of Hire: Enter the first year in which the business owner worked for the sponsoring business (YYYY)

Estimated Self-Employment Earnings: Enter the business owner’s estimated net earnings from self-employment. Generally, net earnings are equal to the self-employed business owner’s gross income from the trade or business (provided the business owner’s personal services are a material income-producing factor) minus allowable business deductions. For purposes of this tool, the earnings entered here are presumed to be net earnings prior to any deductions for self-employment taxes and, if applicable, any deductions for retirement plan contributions made on behalf of common-law employees.

Other Compensation? Indicate whether the business owner will have taxable compensation during the applicable year from any sources other than the business for which retirement plan contribution modeling is being done.

X Other Compensation?

This modeling tool includes calculations to estimate the self-employment taxes that will be payable on the business owner’s self-employment earnings entered in the “Estimated Self-Employment Earnings” field. In situations where the business owner has other taxable compensation for the given modeling year, the calculation assumptions incorporated within this modeling tool may not accurately reflect the business owner’s “compensation” for plan contribution modeling.

SEP IRA: Employee InformationHelp Text

X

Warning: Year of hire must be later than year of birth.

First
Name

Last
Initial

Year of Birth

Year of Hire

Estimate of Covered Compensation

$

+ Add Employees

Please check for valid dates. Valid dates include 1900 through the current year.
X

Employee Information

First Name: Enter the employee's first name

Last Initial: Enter the first initial of the employee’s last name

Year of Birth: Enter the employee’s year of birth (YYYY)

Year of Hire: Enter the first year in which the employee worked for the sponsoring business (YYYY)

Estimate of Covered Compensation: Enter the amount of “covered compensation” the employee earned (or is expected to earn) for the applicable year. While the specific definition of what constitutes covered compensation can vary from one plan to the next, most plans incorporate a definition of compensation that is closely tied to what is reported on employees’ Form W-2 (Wage and Tax Statement). For more information, employers should refer to the plan documents governing their retirement plan.

SEP IRA: Contribution Modeling for

Contribution Percentage:

1%
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5%
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10%
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15%
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20%
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25%

Name

Owner

Eligible

Estimated Contribution

 

Please check for valid dates. Valid dates include 1900 through the current year.
Please check for empty or invalid fields
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Tool Methodology and Assumptions
X

Tool Methodology and Assumptions

  1. Controlled Groups

    If one or more owners of a business has either direct or indirect ownership interests in multiple businesses, the businesses may need to be aggregated and treated as a single business for retirement plan coverage/compliance purposes pursuant to Internal Revenue Code (IRC) Secs. 414(b) and (c). For purposes of this modeling tool, it is assumed that the business for which plan modeling is done is not part of a controlled group under IRC Secs. 4154(b) or (c).

  1. Service Requirements

    When sponsoring a Simplified Employee Pension (SEP) plan, employers may elect to impose a requirement that employees (including business owners) must have worked for the sponsoring business during up to three (3) of the immediately preceding five (5) years. For purposes of calculating plan eligibility, this modeling tool assumes that employees and business owners have worked for the business continuously since their original year of hire. For example, if an employee’s year of hire is entered as 2021 and the planning tool is being used to model contributions for 2024, the employee who was hired in 2021 will be deemed to have worked for the sponsoring organization during three (3) of the immediately preceding five (5) years (2021, 2022 and 2023) for purposes of determining plan eligibility.

    Note: Employers sponsoring a SEP plan may not require employees to work a minimum number of hours during a year to receive credit for a year of service (i.e., for purposes of applying a minimum service requirement, employees are credited with a year of service if they work any portion of the year).

  1. Excludable Categories of Employees

    IRS Form 5305-SEP permits employers to exclude certain classes of employees from participation. These categories include certain groups of employees covered under a collectively bargained plan, certain groups of nonresident alien employees, and employees whose total compensation for the year is less than $750 for 2023 and $750 for 2024 (as indexed for cost-of-living increases). This plan modeling tool assumes that the employees entered are not excludable from plan participation due to one of these exclusions. Accordingly, if you have employees who will be excludable from participation due to one of these exclusions, you should exclude such employees when entering data into the plan modeling tool.

  1. Estimated Self-Employment Earnings

    For a self-employed individual’s income from his or her business to be considered eligible compensation for retirement plan contribution purposes, the individual’s personal services must generally be a material income-producing factor. For purposes of this modeling tool, it is assumed that amounts entered as “Estimated Self-Employment Earnings” for unincorporated business owners meet this requirement.

  1. Calculations of “Estimated Earned Income” for Sole Proprietors and Partnerships

    For purposes of estimating plan contribution allocations, this modeling tool incorporates a number of assumptions which may or may not accurately reflect the way amounts such as self-employment taxes and business deductions will actually be calculated for unincorporated business owners. For purposes of estimating self-employment taxes, the modeling tool assumes that the business owner does not have taxable income from other sources which may affect the amount of self-employment taxes he or she will owe with regards to the business for which plan modeling is being done. With regards to the calculations applied when determining Estimated Earned Income for partners, the tax deduction for contributions the business makes to eligible common-law employees (if any) is assumed to be pro-rated between all business partners (both eligible and ineligible) based on the ratio which each partner’s individual Estimated Self-Employment Earnings bears to the aggregate Estimated Self-Employment Earnings of all partners.

  1. Pro Rata Allocations

    Contributions to the Simplified Employee Pension (SEP) plan are assumed to be allocated to all eligible plan participants on a pro-rata basis based on the contribution percentage selected within the plan modeling tool. (Note: Some SEP plan documents may allow other methods of allocating plan contributions between eligible plan participants.)

  1. Employee Compensation

    For purposes of this plan modeling tool, it is assumed that the “Estimate of Covered Compensation” figure entered for each common-law employee is the amount that is considered covered compensation under the plan sponsor’s applicable SEP plan document.

  1. 5305-SEP

    For purposes of this plan modeling tool, it is assumed that the Simplified Employee Pension (SEP) sponsored by the employer is established using an IRS Form 5305-SEP or comparable plan document.

  1. No Salary Deferrals

    Although some SEP plans established prior to 1997 allow for employees to make salary deferral SEP contributions, for purposes of this plan modeling tool, it is assumed that the SEP plan allows for only employer contributions.

  1. No Other Plans

    For purposes of this plan modeling tool, it is assumed that the employer does not maintain any other employer-sponsored retirement savings plan.