Do You Have to File Form 5500 for a Simplified Employee Pension?

Owners of SEP IRAs should have a copy of Form 5305-SEP from their employer.

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Simplified employee pensions allow employers to help provide significant retirement income for their employees without many of the costs in traditional pension plans. Employers can contribute up to 25 percent of an employee’s wages to the SEP and can adjust each year’s contributions to accommodate cash flow considerations. One benefit of SEPs is that they do not require employers to file a Form 5500. Employees who participate in an SEP have no filing requirement.

Form 5500

The Employee Retirement Income Security Act of 1974 introduced a number of requirements for employers providing retirement benefits. The Department of Labor, Internal Revenue Service and the Pension Benefit Guaranty Board developed Form 5500 to give employers a streamlined way of complying with ERISA reporting standards. Pension plans and employers, not employees, file Form 5500.

SEP Reporting

If an employer offers only SEPs for its employees, it does not need to file a Form 5500. Instead, it can establish the preferential tax treatment for the SEP by completing a Form 5305-SEP or drafting its own plan document. Employees must receive a copy of the Form 5305-SEP agreement to fully establish the SEP. Form 5305-SEP is for informational purposes only, and neither employees nor employers file it with the IRS or any other governmental body.

How SEPs Work

Simplified employee pensions allow employers to fund individual retirement accounts created for each employee. Only the employer contributes to these IRAs and may contribute 25 percent of employee wages up to a limit. For 2013, the most an employer can contribute for one employee is $51,000. Contribution rates, as a percentage of income, must be equal among employees. Employees don’t report their employers’ contributions to their SEP-IRAs on their taxes, but when they make withdrawals, they pay taxes on the entire withdrawal.

Other Considerations

With the exception of SEPs created before 1997 that are grandfathered in, only employers contribute on behalf of the employee. If you participate in your employer’s SEP, your contribution limits to other IRAs may be reduced because you are covered by an employer’s retirement plan. Standard IRA withdrawal rules apply to your SEP-IRA, including penalties for early withdrawals and required minimum distributions beginning at age 70 ½.