April 1, 2021 If you have a SARSEP (Salary Reduction Simplified Employee Pension) IRA plan that was established prior to January 1, 1997, you can continue to operate the plan. However, no new SARSEPs can be established after 1996. A SARSEP allows for both employer contributions and employee salary deferrals. The IRS examinations of SARSEPs indicate a very high rate of noncompliance. If you have a SARSEP, take extra care and watch out for some of the most common mistakes. Mistakes common in a SARSEP Plan has more than 25 eligible employees Eligible employees are excluded At least 50% of eligible employees don't make salary deferrals Deferrals and contributions aren't properly limited Failed (or didn't run) the Deferral Percentage (DP) test Top heavy contributions aren't made Resources SARSEP Checklist PDF: Use this checklist to identify common mistakes in SARSEP plans Form 5305A-SEP, SARSEP IRA Contribution Agreement PDF Publication 3998, Choosing a Retirement Solution for Your Small Business PDF Resources for IRA-Based Plans Small Employer Plan Resources
