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Form Salary Reduction Simplified Employee Pension— OMB No. 1545-1012
5305A-SEP
(Rev. June 2006) Individual Retirement Accounts Do not file
Contribution Agreement with the Internal
Department of the Treasury Revenue Service
Internal Revenue Service (Under section 408(k) of the Internal Revenue Code)

amends its salary reduction SEP by adopting the following Model Salary Reduction
Name of employer SEP under Internal Revenue Code section 408(k) and the instructions to this form.

Note: An employer may not establish a salary reduction SEP after 1996.
Article I—Eligibility Requirements (check applicable boxes—see instructions)
Provided the requirements of Article III are met, the employer agrees to permit elective deferrals to be made in each calendar year to the
individual retirement accounts or individual retirement annuities (IRAs), established by or for all employees who are at least years old
(not to exceed 21 years) and have performed services for the employer in at least years (not to exceed 3 years) of the immediately
preceding 5 years. This simplified employee pension (SEP) includes does not include employees covered under a collective
bargaining agreement, includes does not include certain nonresident aliens, and includes does not include employees
whose total compensation during the year is less than $450*.
Article II—Elective Deferrals (see instructions)
A. Salary Reduction Amount. An eligible employee may elect to have his or her compensation reduced by a specified percentage or amount
per pay period, as designated in writing to the employer.
B. Timing of Elective Deferrals. No deferral election may be based on compensation an eligible employee received, or had a right to receive,
before execution of the deferral election.
Article III—SEP Requirements (see instructions)
The employer agrees that each employee’s elective deferrals to the SEP will be:
A. Based only on the first $220,000* of compensation.
B. Limited annually to the smaller of: (1) 25% of compensation; or (2) the section 402(g) limit for the tax year.
C. Limited further, under section 415, if the employer makes nonelective contributions to this or another SEP.
D. Paid to the employee’s IRA trustee, custodian, or insurance company (for an annuity contract) or, if necessary, an IRA established for an
employee by the employer.
E. Made only if at least 50% of the employer’s employees eligible to participate elect to have amounts contributed to the SEP. If the 50%
requirement is not satisfied as of the end of any calendar year, then all of the elective deferrals made by the employees for that calendar year
will be considered “disallowed deferrals” (IRA contributions that are not SEP-IRA contributions).
F. Made only if the employer had 25 or fewer employees eligible to participate at all times during the prior calendar year.
G. Adjusted only if deferrals to this SEP for any calendar year do not meet the “deferral percentage limitation” described on page 3.
Article IV—Excess SEP Contributions (see instructions)
Elective deferrals by a “highly compensated employee” must satisfy the deferral percentage limitation under section 408(k)(6)(A)(iii). Amounts in
excess of this limitation will be deemed excess SEP contributions for the affected highly compensated employee or employees.
Article V—Notice Requirements (see instructions)
A. The employer will notify each highly compensated employee, by March 15 following the end of the calendar year to which any excess SEP
contributions relate, of the excess SEP contributions to the highly compensated employee’s SEP-IRA for the applicable year. The notification will
specify the amount of the excess SEP contributions, whether they must be withdrawn, the calendar year in which any excess contributions are
includible in income, and must provide an explanation of applicable penalties if the excess contributions that must be withdrawn are not
withdrawn on time.
B. The employer will notify each employee who makes an elective deferral to a SEP that, until March 15 after the year of the deferral, any
transfer or distribution from that employee’s SEP-IRA of SEP contributions (or income on these contributions) attributable to elective deferrals
made that year will be includible in income for purposes of sections 72(t) and 408(d)(1).
C. The employer will notify each employee by March 15 of each year of any disallowed deferrals to the employee’s SEP-IRA for the preceding
calendar year. Such notification will specify the amount of the disallowed deferrals and the calendar year in which those deferrals are includible
in income and must provide an explanation of applicable penalties if the disallowed deferrals are not withdrawn on time.
Article VI—Top-Heavy Requirements (see instructions)
A. Unless paragraph B is checked, the employer will satisfy the top-heavy requirements of section 416 by making a minimum contribution each
year to the SEP-IRA of each employee eligible to participate in this SEP (other than a key employee as defined in section 416(i)). This
contribution, in combination with other nonelective contributions, if any, is equal to the smaller of 3% of each eligible nonkey employee’s
compensation or a percentage of such compensation equal to the percentage of compensation at which elective (not including catch-up elective
deferral contributions) and nonelective contributions are made under this SEP (and any other SEP maintained by the employer) for the year for
the key employee for whom such percentage is the highest for the year.

* This is the amount for 2006. For later years, the limit may be increased for cost-of-living adjustments. Increases, if any, to the amounts in this form that are subject
to cost-of-living adjustments (COLAs), are announced by the IRS in a news release, in the Internal Revenue Bulletin, and on the IRS website at www.irs.gov.
For Paperwork Reduction Act Notice, see page 7. Cat. No. 64362R Form 5305A-SEP (Rev. 6-2006)

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Form 5305A-SEP (Rev. 6-2006) Page 2

Article VI—Top-Heavy Requirements (continued)
B. The top-heavy requirements of section 416 will be satisfied through contributions to nonkey employees’ SEP-IRAs under this employer’s
other SEP.
C. To satisfy the minimum contribution requirement under section 416, all nonelective SEP contributions will be taken into account but elective
deferrals will not be taken into account.
Article VII—Effective Date (see instructions)
This SEP will be effective upon adoption and establishment of IRAs for all eligible employees.

Employer’s signature Date Name and title
Instructions 5305-SEP, Simplified Employee SEP to that participant’s IRA by the later of
Pension—Individual Retirement Accounts January 31 of the year following the year for
Section references are to the Internal Revenue Contribution Agreement, or a nonmodel SEP which a contribution is made or 30 days after
Code unless otherwise noted. instead of, or in addition to, this form. the contribution is made.
Do not use Form 5305A-SEP if you: Employers who have established a salary
Purpose of Form reduction SEP using Form 5305A-SEP and
1. Have any leased employees as defined in have provided each participant a copy of the
Form 5305A-SEP is a model salary reduction section 414(n)(2). completed Form 5305A-SEP and the other
simplified employee pension (SEP) used by an
employer to permit employees to make 2. Currently maintain any other qualified documents and disclosures described in
elective deferrals to a SEP described in retirement plan. This does not prevent you Instructions for the Employer and Instructions
section 408(k). from also maintaining a Model SEP (Form for the Employee, are not required to file the
Do not file Form 5305A-SEP with the IRS. 5305-SEP) or other SEP to which either annual information returns, Forms 5500 or
Instead, keep it with your records. elective or nonelective contributions are 5500-EZ, for the SEP. However, under Title I of
made. the Employee Retirement Income Security Act
Note: SEPs permitting elective deferrals 3. Have more than 25 employees eligible to of 1974 (ERISA), this relief from the annual
cannot be established after 1996. If you participate in the SEP at any time during the reporting requirements may not be available to
established a SEP before 1997 that permitted prior calendar year. If you are a member of one an employer who selects, recommends, or
elective deferrals, under current law you may of the groups described in paragraph 2 under influences its employees to choose IRAs into
continue to maintain such SEP for years after Excess SEP Contributions—Deferral which contributions will be made under the
1996. Percentage Limitation on page 3, you may use SEP, if those IRAs are subject to provisions
If you used the March 2002 version of this SEP only if in the prior year there were that impose any limits on a participant’s ability
Form 5305-A SEP for your SEP, you are not never more than 25 employees eligible to to withdraw funds (other than restrictions
required to use this version of the form. participate in this SEP, in total, of all the imposed by the Code that apply to all IRAs).
members of such groups, trades, or For additional information on Title I
Instructions for the Employer businesses. In addition, all eligible employees requirements, see the Department of Labor
What Is A SEP? of all the members of such groups, trades, or regulations at 29 CFR 2520.104-49.
businesses must be eligible to make elective
A SEP is a written arrangement (a plan) that deferrals to this SEP. Forms and Publications You May
provides you with an easy way to make 4. Are a state or local government or a Use
contributions towards your employees’ tax-exempt organization. An employer may need to use any of the
retirement income. Under a salary reduction
SEP, employees may choose whether or not to Completing the Agreement following forms or publications:
make elective deferrals to the SEP or to ● Form W-2, Wage and Tax Statement.
receive the amounts in cash. If elective This SEP agreement is considered adopted ● Form 5330, Return of Excise Taxes Related
deferrals are made, you contribute the when: to Employee Benefit Plans. Employers who
amounts deferred by your employees directly 1. You have completed all blanks on the are liable for the 10% tax on excess
into a traditional individual retirement form. contributions use this form to pay the excise
arrangement (traditional IRA) set up by or for 2. You have given all eligible employees the tax.
each employee with a bank, insurance following information: ● Pub. 560, Retirement Plans for Small
company, or other qualified financial a. A copy of Form 5305A-SEP. Any Business (SEP, SIMPLE, and Qualified Plans).
institution. The traditional IRA, established by individual who in the future becomes eligible ● Pub. 590, Individual Retirement
or for an employee, must be one for which the to participate in this SEP must be given Form Arrangements (IRAs).
IRS has issued a favorable opinion letter or a 5305A-SEP, upon becoming an eligible
model traditional IRA published by the Service employee. Deducting Contributions
as Form 5305, Traditional Individual b. A statement that traditional IRAs other You may deduct, subject to any applicable
Retirement Trust Account, or Form 5305-A, than the traditional IRAs into which employer limits, contributions made to a SEP. This SEP
Traditional Individual Retirement Custodial SEP contributions will be made may provide is maintained on a calendar year basis, and
Account. It cannot be a SIMPLE IRA (an IRA different rates of return and different terms contributions to the SEP are deductible for
designed to accept contributions made under concerning, among other things, transfers and your tax year with or within which the
a SIMPLE IRA Plan described in section withdrawals of funds from the IRAs. particular calendar year ends. See section
408(p)) or a Roth IRA. Adopting Form 404(h). Contributions made for a particular tax
5305A-SEP does not establish an employer c. A statement that, in addition to the
IRA described in section 408(c). information provided to an employee at the year and contributed by the due date of your
time the employee becomes eligible to income tax return, including extensions, are
The information provided below is intended participate, the administrator of the SEP must deemed made in that tax year and the
to help you understand and administer the furnish each participant within 30 days of the contributions are deductible if they would
elective deferral rules of your SEP. effective date of any amendment to the SEP, a otherwise be deductible had they actually
When To Use Form 5305A-SEP copy of the amendment and a written been contributed by the end of that tax year.
explanation of its effects. See Rev. Rul. 90-105, 1990-2 C.B. 69.
Use this form only if you intend to permit d. A statement that the administrator will However, the deductibility of your
elective deferrals to a SEP. If you want to give written notification to each participant of contributions may be limited if the
establish a SEP to which nonelective employer any employer contributions made under the
contributions may be made, use Form

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Form 5305A-SEP (Rev. 6-2006)                                                                                                                                   Page 3
contributions are excess contributions. See       nature or location of the employment or the                         SEP or arrangement has made excess
Excess SEP Contributions—Deferral                 services performed (such as the exception for                       elective deferrals for a calendar year, the
Percentage Limitation on page 3 and the           agricultural labor in section 3401(a)(2)).                          employee must withdraw those deferrals by
                                                  Compensation also includes earned income                            April 15 following the calendar year to which
Deferral Percentage Limitation Worksheet on       under section 401(c)(2). Compensation does                          the deferrals relate. Deferrals not withdrawn
page 8.                                           not include any employer SEP contributions,                         by April 15 will be subject to the IRA
Effective Date                                    including elective deferrals. Compensation, for                     contribution limits of sections 219 and 408
                                                  purposes of the $450 rule, is the same, except                      and may be considered excess contributions
Insert the date the provisions of this            it includes deferrals made to this SEP and any                      to the employee’s IRA. For the employee,
agreement are effective.                          amount not includible in gross income under                         these excess elective deferrals are subject to
                                                                                                                      a 6% tax on excess contributions under
Eligible Employees                                section● The maximum125 or sectionan employee132(f)(4).may elect to section 4973. Income on excess elective
All eligible employees must be allowed to         defer under this SEP for a year is the smaller                      deferrals is includible in the employee’s
participate in the SEP. An eligible employee is   of 25% of the employee’s compensation or                            income in the year it is withdrawn from the
any employee who: (1) is at least 21 years        the limitation under section 402(g), as                             IRA. The income must be withdrawn by April
old, and (2) has performed “service” for you      explained below.                                                    15, following the calendar year for which the
in at least 3 of the immediately preceding 5      Note: The deferral limit is 25% of                                  deferrals were made. If the income is
years.                                            compensation (minus any employer SEP                                withdrawn after that date and the recipient is
  You can establish less restrictive eligibility  contributions, including elective deferrals).                       not 591⁄2years of age, it may be subject to
requirements, but not more restrictive ones.      Compute this amount using the following                             the 10% tax on early distributions under
  Service means any work performed for you        formula: Compensation (before subtracting                           section 72(t).
for any period of time, however short. If you     employer SEP contributions)  20%.                                  Excess SEP Contributions—Deferral
are a member of an affiliated service group, a    ● If you make nonelective contributions to                          Percentage Limitation
controlled group of corporations, or trades or    this SEP for a calendar year, or maintain any                       The amount each of your “highly
businesses under common control, service          other SEP to which contributions are made                           compensated employees” may contribute to a
includes any work performed for any period        for that calendar year, then contributions to                       salary reduction SEP is also limited by the
of time for any other member of such group,       all such SEPs may not exceed the smaller of                         “deferral percentage limitation.” This is based
trades, or businesses.                            $44,000 (this is the amount for 2006; for later                     on the amount of money deferred, on
Excludable Employees                              years, it may be increased for cost-of-living                       average, by your nonhighly compensated
                                                  adjustments) or 25% of compensation for any                         employees. Deferrals made by a highly
The following employees do not have to be         employee.                                                           compensated employee that exceed this
covered by the SEP: (1) employees covered
by a collective bargaining agreement whose        ● Catch-up elective deferral contributions                          deferral percentage limitation for a calendar
retirement benefits were bargained for in         (see Section 402(g) Limit below) are not                            year are considered “excess SEP
good faith by you and their union, (2)            subject to the 25% limit.                                           contributions” and must be removed from the
nonresident alien employees who did not earn      Section 402(g) Limit                                                employee’s SEP-IRA, as discussed below,
U.S. source income from you, and (3)                                                                                  unless the following exception applies.
employees who received less than $450 (this       Section 402(g) limits the maximum amount of                         Excess SEP contributions of a highly
is the amount for 2006; for later years, it may   compensation an employee may elect to                               compensated employee who is 50 or older
be increased for cost-of-living adjustments) in   defer under a SEP (and certain other                                before the end of the calendar year do not
compensation during the year.                     arrangements) during the calendar year. This                        have to be removed from the employee’s
                                                  limit is $15,000 for 2006 and later years. After                    SEP-IRA to the extent the amount of the
Elective Deferrals                                2006, the $15,000 amount may be increased                           excess SEP contributions is less than the
You may permit your employees to make             for cost-of-living adjustments. In the case of                      catch-up elective deferral contribution limit
elective deferrals through salary reduction       an eligible employee who is 50 or older                             (see Section 402(g) Limit above) reduced by
that, at the employee’s option, may be            before the end of the calendar year, an                             any catch-up elective deferral contributions
contributed to the SEP or received by the         additional amount of compensation                                   already made for the year.
employee in cash during the year.                 (“catch-up elective deferral contributions”)                        The deferral percentage limitation for your
                                                  may be deferred during the year. The limit on                       highly compensated employees is computed
  Notwithstanding any limit in Article IIIB(1) or catch-up elective deferral contributions is                         by first averaging the “deferral percentages”
IIIC, an eligible employee who is 50 or older     $5,000 for 2006 and later years. After 2006,                        (defined below) for the eligible nonhighly
before the end of the calendar year can defer     the $5,000 amount may be increased for                              compensated employees for the year and
an additional amount of compensation during       cost-of-living adjustments.                                         then multiplying this result by 1.25.
the year up to the catch-up elective deferral
contribution limit (see Section 402(g) Limit      Excess Elective Deferrals                                           Only elective deferrals are included in this
below).                                           Amounts deferred for a year in excess of the                        computation. Nonelective SEP contributions
                                                                                                                      may not be included. The determination of
  You must inform your employees how they         section 402(g) limit are considered “excess                         the deferral percentage for any employee is
may make, change, or terminate elective           elective deferrals” and are subject to the rules                    made under section 408(k)(6).
deferrals. You must also provide a form on        described below.                                                    For purposes of this computation, the
which they may make their deferral elections.       The limit applies to the total elective                           calculation of the number and identity of
You may use the Model Salary Reduction            deferrals the employee makes for the                                highly compensated employees, and their
SEP Deferral Form (elective form) on page 5,      calendar year, from all employers, under the                        deferral percentages, is made on the basis of
or a form that explains the information           following arrangements:                                             the entire “affiliated employer” (defined
contained in this form in a way that is written
to be understood by the average plan              ● Salary reduction SEPs under section                               below).
participant.                                      408(k)(6);                                                          A worksheet is provided on page 8 to
                                                  ● Cash or deferred arrangements under                               assist in figuring the deferral percentage. You
SEP Requirements                                  section 401(k);                                                     may want to photocopy it for yearly use.
● Elective deferrals may not be based on          ● Salary reduction arrangements under                               The following definitions apply for purposes
more than $220,000 of compensation (this is       section 403(b); and                                                 of computing the deferral percentage
the amount for 2006; for later years, it may be   ● SIMPLE IRA Plans under section 408(p).                            limitation under this SEP:
increased for cost-of-living adjustments).
Compensation, for purposes other than the           Thus, an employee may have excess                                 1. Deferral percentage is the ratio
$450 rule (see Excludable Employees above),       elective deferrals even if the amount deferred                      (expressed as a percentage to 2 decimal
is defined as wages under section 3401(a) for     under this SEP alone does not exceed the                            places) of an employee’s elective deferrals for
income tax withholding at the source but          section 402(g) limit.                                               a calendar year to the employee’s
                                                                                                                      compensation for that year. For this purpose,
without regard to any rules that limit the          If an employee who elects to defer                                an employee’s elective deferrals does not
remuneration included in wages based on the       compensation under this SEP and any other                           include any catch-up elective deferral

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Form 5305A-SEP (Rev. 6-2006)                                                                                                             Page    4
contributions that exceed the limit in Article    excess SEP contributions arose, the SEP no       Your notification to each affected employee
IIIB(1) or IIIC or the section 402(g) limit       longer will be treated as meeting the rules of of the disallowed deferrals must clearly state:
applicable to employees under 50. No more         section 408(k)(6). In this case, any           ● The amount of the disallowed deferrals;
than $220,000 (this is the amount for 2006; for   contribution to an employee’s IRA will be      ● The calendar year in which the disallowed
later years, it may be increased for              subject to the IRA contribution limits of      deferrals and earnings are includible in gross
cost-of-living adjustments) of compensation       sections 219 and 408 and thus may be           income; and
per individual is taken into account. The         considered an excess contribution to the
deferral percentage of an employee who is         employee’s IRA.                                ● That the employee must withdraw the
eligible to make an elective deferral, but who      Your notification to each affected employee  disallowed deferrals (and allocable income)
does not make a deferral during the year, is      of the excess SEP contributions must           from the IRA by April 15 following the
zero. If a highly compensated employee also       specifically state in a manner written to be   calendar year of notification by the employer.
makes elective deferrals under another salary     understood by the average employee:            Those disallowed deferrals not withdrawn by
reduction SEP maintained by the employer,         ● The amount of the excess SEP                 April 15 following the year of notification will
then the deferral percentage of that highly       contributions attributable to that employee’s  be subject to the IRA contribution limits of
compensated employee includes elective            elective deferrals;                            sections 219 and 408 and thus may be
deferrals made under the other SEP.                                                              considered an excess contribution to the
                                                  ● The amount of these excess SEP               employee’s IRA. For the employee, these
2. Affiliated employer includes (a) any           contributions that must be withdrawn;          disallowed deferrals may be subject to the
corporation that is a member of a controlled      ● The calendar year in which the excess SEP    6% tax on excess contributions under section
group of corporations, described in section       contributions that must be withdrawn are       4973. If income allocable to a disallowed
414(b) that includes the employer, (b) any        includible in gross income; and                deferral is not withdrawn by April 15 following
trade or business that is under common            ● Information stating that the employee must   the calendar year of notification by the
control, defined in section 414(c) with the       withdraw the excess SEP contributions that     employer, the employee may be subject to
employer, (c) any organization that is a          must be withdrawn (and allocable income)       the 10% tax on early distributions under
member of an affiliated service group, defined    from the SEP-IRA by April 15 following the     section 72(t) when withdrawn.
in section 414(m) that includes the employer,     calendar year of notification by the employer.   Disallowed deferrals should be reported the
and (d) any other entity required to be           Excess contributions not withdrawn by April    same way excess SEP contributions are
aggregated with the employer under                15 following the year of notification will be  reported.
regulations under section 414(o).                 subject to the IRA contribution limits of
                                                  sections 219 and 408 for the preceding         Restrictions on Withdrawals
3. A highly compensated employee is an
individual described in section 414(q) who:       calendar year and may be considered excess     Your highly compensated employees may not
a. Was a 5% owner defined in section              contributions to the employee’s IRA. For the   withdraw or transfer from their SEP-IRAs any
416(i)(1)(B)(i) during the current or preceding   employee, the excess contributions may be      SEP contributions (or income on these
year; or                                          subject to the 6% tax on excess contributions  contributions) attributable to elective deferrals
                                                  under section 4973. If income allocable to an  made for a particular calendar year until
b. For the preceding year had compensation        excess SEP contribution is not withdrawn by    March 15 of the following year. Before that
in excess of $95,000 (if the preceding year       April 15 following the calendar year of        date, however, you may notify your
was 2005, $100,000 if the preceding year was      notification by the employer, the employee     employees when the deferral percentage
2006) and was in the top-paid group (the top      may be subject to the 10% tax on early         limitation test has been completed for a
20% of employees, by compensation). For           distributions under section 72(t) when         particular calendar year and that this
later years, the amount may be increased for      withdrawn.                                     withdrawal restriction no longer applies. In
cost-of-living adjustments.                         For information on reporting excess SEP      general, any transfer or distribution made
                                                  contributions that must be withdrawn, see      before March 15 of the following year (or
Excess SEP Contributions—                         Notice 87-77, 1987-2 C.B. 385, Notice 88-33,   notification, if sooner) will be includible in the
Notification                                      1988-1 C.B. 513, Notice 89-32, 1989-1 C.B.     employee’s gross income and the employee
You must notify each affected employee, if        671, and Rev. Proc. 91-44, 1991-2 C.B. 733.    may also be subject to a 10% tax on early
any, by March 15 of the amount of any excess        To avoid the complications caused by         withdrawal. This restriction does not apply to
SEP contributions made to that employee’s         excess SEP contributions, you may want to      an employee’s excess elective deferrals.
SEP-IRA for the preceding calendar year and
what amount must be withdrawn. If needed,         monitor elective deferrals on a continuing     Top-Heavy Requirements
                                                  basis throughout the calendar year to insure
use the model form on page 5 of these             that the deferrals comply with the limits as   Elective deferrals may not be used to satisfy
instructions. Excess SEP contributions that       they are paid into each employee’s SEP-IRA.    the minimum contribution requirement under
must be withdrawn are includible in the                                                          section 416. In any year in which a key
employee’s gross income in the preceding          Disallowed Deferrals                           employee makes an elective deferral, this
calendar year. However, if these excess SEP       If you determine at the end of any calendar    SEP is deemed top-heavy for purposes of
contributions (not including allocable income)    year that more than half of your eligible      section 416, and you are required to make a
total less than $100, then the excess             employees have chosen not to make elective     minimum top-heavy contribution under either
contributions that must be withdrawn are          deferrals for that year, then all elective     this SEP or another SEP for each nonkey
includible in the employee’s gross income in      deferrals made by your employees for that      employee eligible to participate in this SEP.
the calendar year of notification. Income         year will be considered disallowed deferrals,    A key employee under section 416(i)(1) is
allocable to these excess SEP contributions is    for example, IRA contributions that are not    any employee who, at any time during the
includible in gross income in the year of         SEP-IRA contributions.                         preceding year was:
withdrawal from the IRA.
                                                    You must notify each affected employee by    ● An officer of the employer with
If you do not notify any of your employees        March 15 that the employee’s deferrals for     compensation greater than $140,000 (this is
by March 15 of an excess SEP contribution         the previous calendar year are no longer       the amount for 2006; for later years, it may be
that must be withdrawn, you must pay a 10%        considered SEP-IRA contributions. Such         increased for cost-of-living adjustments);
tax on such excess SEP contribution for the       disallowed deferrals are includible in the     ● A 5% owner of the employer, as defined in
preceding calendar year. The tax is reported in   employee’s gross income in that preceding      section 416(i)(1)(B)(i); or
Part VIII of Form 5330. If you do not notify your calendar year. Income allocable to the
employees by December 31 of the calendar          disallowed deferrals is includible in the      ● A 1% owner of the employer with
year following the calendar year in which the     employee’s gross income in the year of         compensation greater than $150,000.
                                                  withdrawal from the IRA.

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Form 5305A-SEP (Rev. 6-2006) Page 5
Model Salary Reduction SEP Deferral Form

I. Salary reduction deferral
Subject to the requirements of the Model Salary Reduction SEP of , I authorize the
(name of employer)
following amount or percentage to be withheld from each of my paychecks and contributed to my SEP-IRA:
(a) % (not to exceed 25%) of my salary; or (b) $.
This salary reduction authorization shall remain in effect until I provide written modification or termination of its terms to my employer.

II. Amount of deferral
I understand that the total amount I defer in any calendar year may not exceed the smaller of:
(a) 25% of my compensation (determined without including any SEP-IRA contributions); or (b) the section 402(g) limit for the year.

III. Commencement of deferral
The deferral election specified in Iabove shall not become effective before . Specify
(Month, day, year)
a date no earlier than the first day of the first pay period beginning after this authorization.

IV. Distributions from SEP-IRAs
I understand that I should not withdraw or transfer any amounts from my SEP-IRA that are attributable to elective deferrals and income
on elective deferrals for a particular calendar year (except for excess elective deferrals) until March 15 of the subsequent year or, if
sooner, when my employer notifies me that the deferral percentage limitation test for that plan year has been completed. Any such
amounts that I withdraw or transfer before this time will be includible in income for purposes of sections 72(t) and 408(d)(1).

Signature of employee Date
Notification of Excess SEP Contributions

To:
(name of employee)

Our calculations indicate that the elective deferrals you made to your SEP-IRA for calendar year exceed the maximum
permissible limits under section 408(k)(6), and that $ must be withdrawn from your SEP-IRA.

These excess SEP contributions are includible in your gross income for the (insert the year identified above, or if less
than $100, the following year) calendar year.

These excess SEP contributions must be distributed from your SEP-IRA by April 15, 20 (insert year after the calendar
year in which this notice is given) in order to avoid possible penalties. Income allocable to the excess amounts must be withdrawn at
the same time and is includible in income in the year of withdrawal. Excess SEP contributions remaining in your SEP-IRA account after
that time are subject to a 6% excise tax, and the income on these excess SEP contributions may be subject to a 10% penalty when
finally withdrawn.

You made total excess contributions for the year of $ . This amount may be different from the amount you have to
withdraw if you have unused catch-up elective deferral contributions under this SEP for the year.

Signature of employer Date
Form 5305A-SEP (Rev. 6-2006)

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Form 5305A-SEP (Rev. 6-2006) Page 6
Instructions for the Employee Section 402(g) Limit If you do not withdraw excess elective
deferrals and any allocable income by April
The following instructions explain what a Section 402(g) limits the maximum amount of 15, the excess elective deferrals will be
simplified employee pension (SEP) is, how compensation you can defer in each calendar subject to the IRA contribution limits of
contributions to a SEP are made, and how to year to all salary reduction SEPs, SIMPLE IRA sections 219 and 408 and will be considered
treat these contributions for tax purposes. For plans under section 408(p), section 403(b) excess contributions to your IRA. Such
more information, see the SEP agreement on salary reduction arrangements, and cash or excess deferrals are subject to a 6% excise
pages 1 and 2 and the Instructions for the deferred arrangements under section 401(k), tax for each year they remain in the SEP-IRA.
Employer beginning on page 2. regardless of the number of employers you The excise tax is reported in Part III of Form
may have worked for during the year. This 5329.
What Is A SEP? limit is $15,000 for 2006 and later years. After
A SEP is a written arrangement (a plan) that 2006, the $15,000 amount may be increased Income earned on excess elective deferrals
allows an employer to make contributions for cost-of-living adjustments. If you are 50 or is includible in your gross income in the year
toward your retirement without becoming older before the end of the calendar year, you you withdraw it from your IRA. The income
involved in more complex retirement plans. A can defer an additional amount of should be withdrawn by April 15 following the
SEP may include a salary reduction compensation (“catch-up elective deferral calendar year in which the deferrals were
arrangement, like the one provided on this contributions”) during the year. The limit on made. If the income is withdrawn after that
form. Under this arrangement, you can elect to catch-up elective deferral contributions is date and you are not 59 ⁄1years2 of age, it
have your employer contribute part of your pay $5,000 for 2006 and later years. After 2006, may be subject to the 10% tax on early
to your own traditional individual retirement the $5,000 amount may be increased for distributions. Report the tax in Part I of Form
account or annuity (traditional IRA), set up by cost-of-living adjustments. 5329. Also see Pub. 590 for a discussion of
exceptions to the age 591⁄ rule.2
you or on your behalf with a bank, insurance For a highly compensated employee, there
company, or other qualified financial may be a further limit on the amount you can Excess SEP Contributions
institution. The part contributed is tax defer. Figured by your employer and known If you are a highly compensated employee,
deferred. Only the remaining part of your pay as the deferral percentage limitation, it limits you may have excess SEP contributions for a
is currently taxable. This type of SEP is the percentage of pay that a highly calendar year that may have to be withdrawn
available only to an employer with 25 or fewer compensated employee can elect to defer to from your SEP-IRA. If you have excess SEP
eligible employees. a SEP-IRA. Your employer will notify any contributions that do not have to be
The traditional IRA must be one for which highly compensated employee who has withdrawn (because you had unused
the IRS has issued a favorable opinion letter or exceeded the limitation. catch-up elective deferral contributions), the
a model traditional IRA published by the IRS Tax Treatment following rules on including the contributions
as Form 5305, Traditional Individual in income, withdrawing the contributions, and
Retirement Trust Account, or Form 5305-A, Elective deferrals that do not exceed the penalties if you don’t withdraw them do not
Traditional Individual Retirement Custodial limits discussed above are excluded from apply to these excess SEP contributions.
Account. It cannot be a SIMPLE IRA (an IRA your gross income in the year of the deferral. Your employer must notify you of any excess
designed to accept contributions made under They are not included as taxable wages on contributions, whether or not they must be
a SIMPLE IRA Plan described in section Form W-2, Wage and Tax Statement. withdrawn. This notification should show the
408(p)) or a Roth IRA. However, elective deferrals are treated as amount of the excess SEP contributions, the
Your employer must provide you with a wages for social security, Medicare, and amount that must be withdrawn, the calendar
copy of the SEP agreement containing unemployment (FUTA) tax purposes. year to include any excess contributions in
eligibility requirements and a description of the Excess Amounts income, and the penalties that may be
basis upon which contributions may be made. assessed if the contributions that must be
There are three situations which will result in withdrawn are not withdrawn from your IRA
All amounts contributed to your IRA belong excess amounts in a salary reduction within the applicable time period.
to you, even after you quit working for your SEP-IRA. Your employer must notify you of the
employer. 1. Making excess elective deferrals (for excess SEP contributions by March 15
Forms and Publications You May example, amounts in excess of the section following the calendar year for which you
Use 402(g) limit). You must determine whether you made the excess SEP contributions.
An employee may use either of the two forms have exceeded the limit in the calendar year. Generally, you include the excess SEP
and the publications listed below. 2. Highly compensated employees who contributions in income for the calendar year
make excess SEP contributions (for example, in which you made the original deferrals. This
● Form 5329, Additional Taxes on Qualified amounts in excess of the deferral percentage may require you to file an amended individual
Plans (including IRAs) and Other Tax-Favored limitation referred to above). The employer income tax return. However, any excess SEP
Accounts. Use Form 5329 to pay tax on must determine if an employee has made contribution less than $100 (not including
excess contributions and/or tax on early excess SEP contributions. allocable income) must be included in income
distributions. 3. Having disallowed deferrals (for example, in the calendar year of notification. Income
● Form 8606, Nondeductible IRAs. Use Form more than half of your employer’s eligible earned on these excess contributions must
8606 to report nondeductible IRA employees choose not to make elective be included in your gross income when you
contributions. deferrals for a year). All elective deferrals withdraw it from your IRA.
● Pub. 590, Individual Retirement made by employees for that year are You must withdraw these excess SEP
Arrangements (IRAs). considered disallowed deferrals, as discussed contributions (and allocable income) from
● Pub. 560, Retirement Plans for Small below. Your employer must also determine if your IRA. You may withdraw these amounts
Business (SEP, SIMPLE, and Qualified Plans). there are disallowed deferrals. without penalty, until April 15 following the
calendar year in which you were notified by
Elective Deferrals Excess Elective Deferrals your employer of the excess SEP
Annual Limitation Excess elective deferrals are includible in your contributions. Otherwise, the excess SEP
The maximum amount that you may defer to a gross income in the calendar year of deferral. contributions are subject to the IRA
SEP for a calendar year is limited to the Income earned on the excess elective contribution limits of sections 219 and 408
smaller of 25% of compensation or the section deferrals is includible in the year of and will be considered an excess contribution
402(g) limit. The 25% limit is reduced if your withdrawal from the IRA. You should to your IRA. Thus, the excess SEP
employer makes nonelective contributions on withdraw excess elective deferrals and any contributions are subject to a 6% excise tax
your behalf to this or another SEP for the year. allocable income by April 15 following the reportable in Part III of Form 5329 for each
In that case, the total contributions on your year to which the deferrals relate. These year the contributions remain in your IRA.
behalf to all such SEPs may not exceed the amounts may not be transferred or rolled over If you do not withdraw the income earned
smaller of $44,000 (this is the amount for tax-free to another IRA. on the excess SEP contributions by April 15
2006; for later years, it may be increased for following the calendar year of notification by
cost-of-living adjustments) or 25% of your employer, the income may be subject to
compensation.

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Form 5305A-SEP (Rev. 6-2006) Page 7
a 10% tax on early distributions if you are not these contributions) attributable to elective disclosure statement that contains the
591⁄2years of age when you withdraw it. deferrals made during the year until March 15 following information in plain, nontechnical
Report the tax in Part I of Form 5329. Also of the following year or, if sooner, at the time language:
see Pub. 590. your employer notifies you that the deferral per- 1. The law that relates to your IRA.
If you have both excess elective deferrals centage limitation test (discussed under Annual 2. The tax consequences of various options
and excess SEP contributions, the amount Limitation on page 6) has been completed for concerning your IRA.
of excess elective deferrals that you withdraw that year. In general, any transfer or distribution 3. Participation eligibility rules, and rules on
by April 15 will reduce any excess SEP made before this time is includible in your gross the deductibility of retirement savings.
contributions that must be withdrawn for the income and may also be subject to a 10% tax
corresponding calendar year. on early distribution. Report this tax in Part I of 4. Situations and procedures for revoking
Form 5329. You may, however, remove excess your IRA, including the name, address, and
Disallowed Deferrals elective deferrals from your SEP-IRA before this telephone number of the person designated
You are not required to make elective time but you may not roll over or transfer these to receive notice of revocation. (This
deferrals to a SEP-IRA. However, if more than deferrals to another IRA. information must be clearly displayed at the
50% of your employer’s eligible employees beginning of the disclosure statement.)
choose not to make elective deferrals in a If the restrictions above do not apply, you 5. A discussion of the penalties that may
calendar year, then no employee may may withdraw funds from your SEP-IRA and be assessed because of prohibited activities
participate for that calendar year. If you make no more than 60 days later place those funds concerning the IRA.
elective deferrals during a year in which this in the same or another IRA, but not in a
happens, then your deferrals for that year will SIMPLE IRA. This is called a “rollover” and 6. Financial disclosure that provides the
be “disallowed,” and the deferrals will be can be done without penalty only once in any following information.
treated as ordinary IRA contributions (which 1-year period. However, there are no
restrictions on the number of times that you a. Projects value growth rates of the IRA
may be excess IRA contributions) rather than may make “transfers” if you arrange to have under various contribution and retirement
SEP-IRA contributions. these funds transferred between the trustees schedules, or describes the method of
Disallowed deferrals and any income the or the custodians so that you never have computing and allocating annual earnings and
deferrals have earned may be withdrawn, possession of the funds. charges that may be assessed.
without penalty until April 15 following the You may not, however, roll over or transfer b. Describes whether, and for what period,
calendar year in which you are notified of the excess elective deferrals, excess SEP the growth projections are guaranteed, or a
disallowed deferrals. Amounts left in the IRA contributions, or disallowed deferrals from statement of earnings rate and the terms on
after that date will be subject to the same your SEP-IRA to another IRA. These amounts which these projections are based.
penalties discussed in Excess SEP
Contributions above. may be reduced only by a distribution to you. c. States the sales commission to be
charged in each year expressed as a
Income Allocable To Excess Employer To Provide Information on percentage of $1,000.
Amounts SEP-IRAs and Form 5305A-SEP In addition, the financial institution must
The rules for determining and allocating Your employer must give you a copy of the provide you with a financial statement each
income to excess elective deferrals, excess following information: year. You may want to keep these statements
SEP contributions, and disallowed deferrals to evaluate your IRA’s investment
are the same as those governing regular IRA 1. A copy of a completed Form performance and to report IRA distributions
contributions. The trustee or custodian of 5305A-SEP, the Model Salary Reduction SEP for tax purposes.
your SEP-IRA will inform you of the income Deferral Form (used to defer amounts to the
allocable to these amounts. SEP), and, if applicable, a copy of the Notice
of Excess SEP Contributions. Your employer Paperwork Reduction Act Notice. You are
Additional Top-Heavy Contributions should also provide you with a statement of not required to provide the information
any contributions made during the calendar requested on a form that is subject to the
If you are not a key employee, your employer year to your SEP-IRA. Highly compensated Paperwork Reduction Act unless the form
must make an additional contribution to your employees must also be notified at the time displays a valid OMB control number. Books
SEP-IRA for a year in which the SEP is the deferral percentage limitation test is or records relating to a form or its instructions
considered “top heavy.” (Your employer can completed. must be retained as long as their contents
tell you if you are a key employee. Also, see 2. A statement that traditional IRAs other may become material in the administration of
Top-Heavy Requirements on page 4 for the than SEP-IRAs receiving contributions under any Internal Revenue law. Generally, tax
definition of a key employee.) This additional this SEP may have different rates of return returns and return information are
contribution will not exceed 3% of your and different terms (for example, transfers confidential, as required by section 6103.
compensation. It may be less if your employer and withdrawals from the IRAs).
has already made a contribution to your The time needed to complete this form will
SEP-IRA, and for certain other reasons. 3. A statement that the administrator of an vary depending on individual circumstances.
amended SEP must furnish to each The estimated average time is:
IRA Contribution for SEP participant within 30 days of the amendment, Recordkeeping 4 hr., 29 min.
Participants a copy of the amendment and an explanation
of its effects. Learning about the
In addition to any SEP amounts, you may 4. A statement that the administrator must law or the form 5 hr., 1 min.
make regular IRA contributions to an IRA. notify each participant in writing of any Preparing the form 58 min.
However, the amount of your contribution that employer contributions to the SEP-IRA. The If you have comments concerning the
you may deduct on your income tax return is notification must be made by the later of accuracy of these time estimates or
subject to various income limits. See Form January 31 following the year of the suggestions for making this form simpler, we
8606. Also, you may want to see Pub. 590. contribution or 30 days after the contribution would be happy to hear from you. You can
is made.
SEP-IRA Amounts—Rollover or write to the Internal Revenue Service, Tax
Transfer To Another IRA Financial Institution Requirements Products Coordinating Committee,
SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave.
If you are a highly compensated employee, The financial institution where your IRA is NW, IR-6406, Washington, DC 20224. Do not
you may not withdraw or transfer from your maintained must provide you with a send this form to this address. Instead, keep
SEP-IRA any SEP contributions (or income on it for your records.

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Form 5305A-SEP (Rev. 6-2006)                                                                                                             Page       8
                       Deferral Percentage Limitation Worksheet (see instructions on page 3)
                             (b) Status                                                      (f) Permitted       (g) Permitted       (h) Excess
  (a) Employee Name          H = HCE*   (c) Compensation    (d) Deferrals    (e) Ratio           ratio           amount              (for HCE* only)
                             O = Other      (see below)     (see below)      (d)  (c)       (for HCE* only, see (for HCE* only)     (d) minus (g)
                                                                                                 below)              (c)  (f)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
* Highly compensated employee. See the definition on page 4.
Column (c). Compensation.    Enter compensation from this employer and any related employers.
Column (d). Deferrals. Enter all SEP elective deferrals other than catch-up elective deferral contributions. See Deferral percentage on page 3.
Column (f). Permitted ratio.
Column (h). Excess. Amounts in this column may have to be withdrawn by the HCE. See instructions on page 3.
A Enter the total of the ratios in column (e) for the employees marked as “O” in column (b)
B Divide line A by the number of employees marked as “O” in column (b)
C Permitted ratio. Multiply line B by 1.25 and enter the permitted ratio here

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