|
Mistake |
Find the Mistake |
Fix the Mistake |
Avoid the Mistake |
|---|---|---|---|
| 1. You haven't updated your SEP plan document for current law |
Determine if your Form 5305-SEP PDF or SEP prototype plan document is the current revision (December 2004) | Adopt revised Form 5305-SEP or IRS-approved SEP prototype plan document. | Maintain regular contact with the company that sold you the plan |
| 2. Employees of related businesses were excluded from participating |
Identify any companies that you own or with which you have a financial relationship | Apply reasonable correction method that would place affected employees in the position they would've been in if there were no operational plan mistakes | Determine if you own any other businesses |
| 3. Eligible employees were excluded from participating |
Review plan sections on eligibility and participation and check when employees are entering the plan | Corrective contribution that would place affected employees in the position they would've been in if there were no operational plan mistakes | Review the participation status of all employees at least once a year |
| 4. Contributions to participants’ SEP-IRAs were miscalculated because the wrong definition of compensation was used
|
Review the SEP plan document to determine if you’re using the proper compensation for allocations |
Correction is based on the terms of the plan in effect at the time of the mistake |
Review the SEP plan document terms to ensure that you're considering the correct amount of compensation when calculating contributions |
| 5. Contributions to each participant’s SEP-IRA weren't a uniform percentage of the participant’s compensation |
Divide contributions by compensation for each employee |
Corrective contribution that would place affected employees in the position they would've been in if there were no operational plan mistakes | After the initial calculation of allocations based on the SEP plan document's terms, verify that all proposed contributions are based on a uniform percentage of participants’ compensation |
| 6. Contributions to the SEP-IRA exceeded the maximum legal limits |
Determine the total contribution made for each employee and make sure that amount does not exceed the lesser of:
|
Either distribute or retain the excess amount | After the initial calculation of allocations based on the terms of the SEP plan document, check to make sure none of the proposed allocations would violate the law |
SEP Overview
EPCRS Overview
SEP Checklist PDF
IRA-Based Plans Additional Resources