SEP Plans

Question 1

What types of employers can establish a SEP plan?

Answer 1

Any employer

Question 2

Regarding a SEP plan, what is a controlled group of businesses?

Answer 2

A main business that has other businesses under it.

Question 3

How is a controlled group treated for purposes of coverage under a retirement plan?

Answer 3

The controlled group must be treated as one single employer.

Question 4

What is the maximum age that an employer can require an employee to be to participate in a SEP plan?

Answer 4

Age 21

Question 5

What is the most restrictive service requirement that an employer can require for an employee to participate in a SEP plan?

Answer 5

Employee must have worked three out of the preceding five years

Question 6

If an employer chooses to apply the compensation eligibility requirement, what is the highest dollar amount that can be used as the minimum annual income amount for 2024?

Answer 6

$750

Question 7

What types of employees may be excluded from participation in a SEP plan?

Answer 7

Union members whose retirement benefits are part of the collective bargaining agreement and nonresident aliens with no U.S. income

Question 8

What are the three types of documents an employer can use to establish a SEP plan?

Answer 8

Form 5305-SEP, Prototype, Individually designed

Question 9

Which document would need to be completed and signed for an employee to participate in a SEP plan?

Answer 9

Form 5305 or Form 5305-A

Question 10

What is the maximum SEP plan contribution an employer can make on behalf of an employee for 2024?

Answer 10

The lesser of 25 percent of compensation up to $345,000 or $69,000.

Question 11

What is the deadline for the employer to make a SEP contribution?

Answer 11

The employer’s tax return deadline, plus extensions

Question 12

What are the three IRS-approved methods for allocating employer SEP plan contributions?
a. Pro rata
b. Prototype
c. Flat dollar
d. Employer designed
e. Employee deferral
f. Social Security integration

Answer 12

a. Pro rata
c. Flat dollar
f. Social Security integration

Question 13

Which allocation method is the only one permitted if using Form 5305-SEP?

Answer 13

Pro rata

Question 14

If an employer makes its 2023 SEP plan contributions on February 1, 2024, which year’s Form 5498 will the financial organization report the contribution amount on, and in which box will the financial organization enter the contribution amount?

Answer 14

2024, Box 8

Question 15

Which of the following best describes the pro rata allocation formula?

Answer 15

The same percentage for each eligible employee is multiplied by each employee’s compensation.

Question 16

Which of the following best describes the Social Security integration allocation formula?

Answer 16

Eligible highly compensated employees receive an extra contribution on compensation above the taxable wage base.

Question 17

Which of the following best describes the flat dollar allocation formula?

Answer 17

The same dollar amount is contributed to each eligible employee’s IRA.

Question 18

Which employees benefit from the Social Security integration allocation formula?

Answer 18

Highly compensated eligible employees benefit from an additional contribution amount.

Question 19

Which employees benefit from the pro rata allocation formula?

Answer 19

Eligible employees with higher compensation benefit because the contribution is based on compensation.

Question 20

Which employees benefit from the flat dollar allocation formula?

Answer 20

Lower compensated eligible employees benefit because they receive the same contribution amount as the higher compensated employees.

Question 21

What are the tax consequences when an employee takes a distribution from his SEP plan?

Answer 21

The distribution is subject to income tax; the distribution is subject to the 10 percent early distribution penalty tax unless a penalty tax exception applies.

Question 22

Which of the following is a type of SEP plan that has salary deferral contributions and may still be maintained if it was established before 1997?

Answer 22

SAR-SEP

Question 23

Which of the following is an allocation formula that allows employers to make an additional contribution to higher paid employees only without being discriminatory?

Answer 23

Social Security integration

Question 24

Which type of IRA is allowed to receive employee contributions to a SEP plan?

Answer 24

Traditional IRA

Question 25

Which form may be used by an employer to establish a SEP plan?

Answer 25

5305-SEP

Question 26

Which of the following defines adjusted net business income?

Answer 26

The compensation used by a self-employed individual to determine her contribution to a SEP plan.

Question 27

What are the steps an employer takes to establish a SEP plan?

Answer 27

Complete a written SEP plan agreement by tax return deadline plus extensions, sign plan documents, provide information to employees, have employees establish Traditional IRAs, and deposit the first SEP contribution.