SEP REQUIREMENTS

[Marie]

SEP AGREEMENT SAYS WORK FOR ONE YEAR, AT LEAST 21 YEARS OF AGE.  YOUNG MAN HAS WORKED OVER 1 YEAR, AND TURNED 21 IN NOVEMBER 0F 2020.  DOES THAT MAKE HIM ELIGIBLE THE WHOLE YEAR, OR ONLY THE MONTHS HE WORKED AFTER HE TURNED 21?

NOW HE HAS QUIT IN fEBRUARY.  WILL HE BE ELIGIBLE IN 2021, I THINK SO, JUST NOT SURE ABOUT 2020

[Marie]

please, give me some guidance

[jklcpa]

For the year the employee turns 21, you use the entire plan year's compensation, not just the portion after attaining age 21.

One of the requirements for SEP plans is that the employee must have at least $650 in compensation in 2021 ($600 in 2019 and 2020) BUT PLANS MAY BE WRITTEN WITH LESS RESTRICTIVE REQUIREMENTS, and that sounds like that is the case of your client's plan.  Be sure to recheck the plan documents for this though.  If the plan is less restrictive by not having a minimum compensation requirement, then this employee would be a participant for 2021.