Participation Limits in SEPs

If you have a SEP, the law mandates that any employee who has reached age 21, has worked for you in at least three of the preceding five years, and has received at least $450 from you for the year (the amount for 2001 and 2002; this amount may be adjusted periodically for inflation) must be allowed to participate in your SEP. You can write your plan to be more generous if you like (for example, allow employees under 21 or with fewer than three years of service to participate).


You provide your employees with a SEP. Wilberforce Bream worked for you while in college in 1998, 1999, and 2000, never working more than 25 days in any particular year. In November 2001, he starts working for you full-time. He earns $2,000 from you in 2001. He turns 21 on December 31, 2001. You must make a SEP contribution for him for 2001 since he met the minimum age requirement, has worked for you in three of the five years preceding 2001, and has met the minimum requirement for 2001.

There are a couple of points you should remember about participation: