A SEP, or Simplified Employee Pension, is a written plan that allows an employer to make contributions toward his or her own retirement and their employees’ retirement without getting involved in a more complex qualified plan. Under a SEP, the employer makes contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. A SEP-IRA is owned and controlled by the employee, and the employer makes contributions to the financial institution where the SEP-IRA is maintained. SEP-IRAs are set up for, at a minimum, each eligible employee. A SEP-IRA may have to be set up for a leased employee, but does not need to be set up for excludable employees.
A SIMPLE IRA (Savings Incentive Match Plans for Employees) is a retirement plan that uses SIMPLE IRAs for each eligible employee. Under a SIMPLE IRA plan, a SIMPLE IRA must be set up for each eligible employee.
A SIMPLE 401(k) plan is a qualified retirement plan and generally must satisfy the rules discussed under Qualification Rules, including the required distribution rules.
A qualified plan is a retirement plan that offers a tax-favored way to save for retirement. The taxpayer can deduct contributions made to the plan for their employees. Earnings on these contributions are generally tax free until distributed at retirement. Profit-sharing, money purchase, and defined benefit plans are qualified plans. A 401(k) plan is also a qualified plan.
To enter SEP, SIMPLE & Qualified Plans in the tax program, from the Main Menu of the Tax Return (Form 1040) select:
- Adjustments Menu
- SEP, SIMPLE & Qualified Plans
NOTE: This is a guide on entering SEP, SIMPLE & Qualified Plans into the tax program. This is not intended as tax advice.