Addressing the
Simplified Employee Pension Plan

The Internal Revenue Service (IRS) provided an updated discussion on the Simplified Employee Pension (SEP) Plan on their Web site in Spring 2011. Let's look at a few of the topics:

First a question...

Can each partner in a partnership maintain a separate Simplified Employee Pension plan?

No, only an employer can maintain and contribute to a SEP plan for its employees. For retirement plan purposes, each partner or member of a Limited Liability Corporation taxed as a partnership is an employee of the partnership.

In addition to the partners, the partnership’s SEP plan must generally cover all employees who have:

• Reached age 21
• Worked for the partnership in at least 3 of the last 5 years
• Received at least $550 of compensation in 2011 (subject to annual cost-of-living adjustments)

The plan may use less restrictive participation requirements to cover employees.

Next — more detail

Under the SEP plan, the partnership contributes to each eligible employee’s SEP-IRA, which each employee owns and controls.

The partnership:

• Deducts plan contributions for employees other than the partners as a business expense on Line 18 of Form 1065, U.S. Return of Partnership Income (instructions);
• Reports plan contributions for partners in Box 13, using Code R, on each partner’s Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc.

Partners deduct plan contributions they make for themselves on Line 28 of their Form 1040, U.S. Individual Income Tax Return.

Finally, additional resources

If the partnership made a mistake by not including an otherwise eligible employee in the plan, it can correct that mistake (see the SEP Fix-It Guide).

• SEP plan Web pages
• Publication 4333, SEP Retirement Plans for Small Businesses
• Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
• SEP Plan Pitfalls - Phone Forum (February 26, 2010) (Handout)

Visit our site at for more information on this easy retirement plan for self-employed individuals and small companies.