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People Who Work for You Benefits for Your Workers Retirement Benefits Simplified Employee Pension Benefits How Much Will You Contribute?
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In setting up a SEP, you have to decide what percentage of compensation you'll use to determine your SEP contributions. This number, known as a contribution allocation formula, is really just a fancy name for figuring out which percentage you will use.
Generally, your SEP contributions must be made in an amount that is the same percentage of total compensation for every employee. Note that this requirement merely obligates you to use the same percentage for every employee; it does not require you to use the same percentage every year (or even to contribute every year).
As a practical matter, you'll want to wait until you know how much money you have available for SEP contributions (usually after the books are closed at the end of the year) before determining the percentage.
Notices for employees. After you have determined the percentage and made the contributions, you must give written notice to each participant detailing your contributions to their SEPs. The notice must be made by the later of January 31 of the year following the year for which a contribution is made, or 30 days after the contribution is made.
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