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By: Glenn Schanel, CPA
on June 3, 2016

The IRS recently identified a few common errors seen in one of the most popular retirement plans used by small businesses — the SEP plan.

General Rules for SEPs
With a SEP (Simplified Employee Pension) plan, employers establish individual retirement accounts (IRAs) for each eligible employee. Contributions are made only by the employer.

Contributions are tax deductible by the employer. For 2016, the maximum contribution for each employee is the lesser of 25% of annual compensation (up to $265,000) or $53,000. Employees are not taxed on employer contributions until they are withdrawn from the plan.

Errors Commonly Seen by the IRS
Discrimination in employer contributions. Plans may not discriminate in favor of owners and highly compensated employees. Contributions must be at the same percentage rate for all eligible employees.

Improper exclusion of employees. Eligible employees include all those who have (1) reached age 21, (2) performed services for the employer during at least three of the immediately preceding five years, and (3) received at least $600 in compensation.

Failure to take required minimum distributions (RMDs). All SEP participants must begin taking RMDs at age 70½, whether or not they are still working.


Schanel & Associates is a CPA firm specializing in accounting, tax, business valuation and litigation support serving Palm Beach, Martin and St. Lucie Counties and beyond since 1993. Our CPAs and accounting professionals work with individuals, businesses, estates and trusts to provide everything you need under one roof. For more information, contact us today at 561-624-2118. Glenn Schanel is the founding Principal of Schanel and Associates. Glenn Schanel is a CPA with over three decades of experience helping people and organizations manage, make sense of and benefit from their finances. He oversees areas that include auditing, accounting, tax, business valuation, forensic accounting, litigation support and other consulting services to both business and individual clients.

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