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SIMPLE & SEP Compliance Checklists
Sponsored by H.D. Vest Financial Services®
You Can Increase the Value of Your Business by Pursuing Opportunities with Small-Business Clients
If many of your small-business clients sponsor Savings Incentive Match Plans for Employees of Small Employers (SIMPLE Plans) or Simplified Employee Pensions (SEPs) pension plans, you need to keep them fine-tuned with regular compliance checkups. To help with the process, the IRS has provided checklists that can help uncover or prevent potential problems. This article provides you with questions to ask to help keep your clients' plans in good working order.
The checklists do not cover all requirements of the plans. However, by going through the list, you can help clients uncover potential problems and be able to fix them with minimal cost. These checklists give you a good reason to stay in touch with your small-business clients and uncover other opportunities to help them. Small-business clients can offer the greatest opportunity for you to expand the solutions you provide and grow your business. Small-business owners often need retirement planning help, estate planning help, college funding, lines of credit, insurance and other solutions, which are often not offered by the other professionals they deal with. However, as their tax professional, you have the advantage of their trust and a unique vantage point of having most of their financial information already. You are in the best position to help them.
If your clients answer "No" to any of the following questions, there could be an error in the operation of their SIMPLE IRA or SEP plans. Many mistakes can be corrected easily, without penalty and without notifying the IRS. You can go over this checklist with your clients or simply send it to them – either way, follow up with them on any issues.
| SIMPLE PLAN CHECKLIST | ||
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| Yes | No | Question |
| Is this SIMPLE IRA plan your business's only retirement plan? A business with a SIMPLE IRA plan generally cannot sponsor any other retirement plan, such as a 401(k) plan. |
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| Have you allowed employees to terminate their salary reduction elections? You must allow employees, at any time, to stop making deferrals. |
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| Does your business have 100 or fewer employees? Businesses with more than 100 employees (including full-time, part-time and seasonal employees) with individual earnings of at least $5,000 yearly cannot establish a SIMPLE IRA plan. |
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| Do you know how to, and did you, identify eligible employees? An eligible employee is one with compensation of at least $5,000 per year in any two prior years, who is expected to earn at least $5,000 this year. |
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| Is the business that the SIMPLE IRA plan covers the only one that you and/or your family members own? Employees of other businesses you and/or your family members own may have to be considered when determining who is an eligible employee under the SIMPLE IRA plan. |
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| Did you notify eligible employees of their right to elect salary reduction or modify a prior salary reduction agreement? Each year, you must give employees notice before November 2 of their right to participate in the retirement plan for the next year and to change a prior salary reduction agreement. |
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| Do you give employees an annual notice, before November 2 each year, of plan provisions and employer contribution levels for the upcoming year? You must give employees notice of the plan provisions and employer contribution levels, including any plan changes, at least 60 days prior to the start of the next calendar year. |
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| Are employee deferrals to SIMPLE IRAs limited, as required by law? The deferral limits to a SIMPLE IRA are $10,500 for 2007 ($10,000 for 2006). Catch-up contributions for participants aged 50 or over are limited to an additional $2,500 for 2007 (and 2006). |
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| Have you deposited employee deferrals in a timely manner? You must deposit an employee's deferral in the IRA as soon as possible, but no later than 30 days following the month in which the employee would have otherwise received the money. |
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| Have you deposited employer contributions in a timely manner? As an employer, you have until the due date, including extensions, of your tax return to deposit matching contributions or non-elective contributions. |
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| SEP PLAN CHECKLIST | ||
|---|---|---|
| Yes | No | Question |
| Are all eligible employees participating in the SEP? Any employee who is at least 21 years of age, was employed by you for three of the immediately preceding five years, and received compensation from you of at least $450 during the year (subject to cost-of-living adjustments) is eligible to participate. Is the business that the SEP covers the only one that you and/or your family members own? Employees of other businesses you and/or your family members own may have to be treated as employees when determining who is an eligible employee under this SEP. |
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Are SEP contributions to each employee's IRA limited as required by law? Contributions to a SEP-IRA are limited to the lesser of 25 percent of the employee's compensation for the year, or $44,000 for 2006, subject to cost-of-living adjustments for later years. |
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Are employer contributions immediately 100 percent vested? Employer contributions cannot be conditioned on anything. Once made, the employee owns all contributions. |
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Are contributions made only to a Traditional IRA? All SEP contributions must go to Traditional IRAs set up for the eligible employees. |
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If required, have you made top-heavy minimum contributions? If a SEP is top-heavy or deemed top-heavy, contributions must be made for the non-key employees equal to the lesser of 3% of compensation or a percentage equal to the highest contribution rate of any key employee. |
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Have you deposited employer contributions in a timely manner? Employers have until the due date, including extensions, of their tax return to deposit employer contributions in order to obtain a deduction. |
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Are you determining each eligible employee's compensation using an appropriate definition in accordance with your SEP document? For 2006, compensation used to determine contributions is limited to $220,000 and subject to cost-of-living adjustments in later years. |
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Have you given all eligible employees information about the SEP? You must give employees certain information, including a copy of the SEP document. Form 5305-SEP is your SEP document if you use the model form. |
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If the model Form 5305-SEP was used to set up the plan, is this SEP your business's only employee retirement plan? A sponsor of a SEP established using model Form 5305-SEP cannot sponsor another retirement plan, such as a 401(k) plan. |
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Affiliation and Compensation Options |
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