Eligibility Requirements for an SEP IRA

The Internal Revenue Service's eligibility requirements for an SEP IRA define which employees must be included in an employer's SEP IRA agreement. 

The IRS requires an employee to be included if he

  • is age 21 or over,
  • has worked for the employer for 3 out of the previous 5 years, and
  • makes more than the IRS's exclusion allowance (an amount subject to change from year to year).

Employers must cover all employees fitting these guidelines under the SEP IRA agreement. The IRS states that an employer can be less restrictive than the guidelines but not more restrictive. For instance, an employer can set the minimum age for SEP IRA participation to 19 or 20. If an employer sets less restrictive eligibility requirements, he must include all employees who fit those requirements.

Part-time and seasonal employees meeting the eligibility requirements must also be covered by the SEP IRA agreement. Employers must also contribute to the accounts of any employees who leave or die during a particular contribution year.

Employers may (but are not required to) exclude labor union members whose labor agreements provide for retirement benefits. The IRS also allows employers to exclude employees making less than a certain amount per year ($550 in 2010), including nonresident alien employees who did not receive compensation from the employer. 

 

 

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