A SEP, or Simplified Employee Pension, is a written plan that allows you to make contributions toward your own retirement and your employees’ retirement without getting involved in a more complex qualified plan. Under a SEP, you make the 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 you make 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, or 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. You can deduct contributions made to the plan for your 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.