IRS Publication 560 — Retirement Plans for Small Business

the 4-year period ending with the plan year is less than $1,000.) b. Full and immediate vesting. c. A nonintegrated employer contribution rate of at least 10% of compensation for each participant. However, if the leased employee is your common-law employee, that employee will be your employee for all purposes, regardless of any pension plan of the leasing organization. Net earnings from self -employment. For SEP and qualified plans, net earnings from self -employment are your gross income from your trade or business (provided your personal services are a material income -producing factor) minus allowable business deductions. Allowable deductions include contributions to SEP and qualified plans for common -law employees and the deduction allowed for the deductible part of your self-employment tax. Net earnings from self -employment don’t include items excluded from gross income (or their related deductions) other than foreign earned income and foreign housing cost amounts.

For the deduction limits, earned income is net earnings for personal services actually rendered to the business. You take into account the income tax deduction for the deductible part of self -employment tax and the deduction for contributions to the plan made on your behalf when figuring net earnings. Net earnings include a partner's distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). They don’t include income passed through to shareholders of Scorporations. Guaranteed payments to limited partners are net earnings from self -employment if they are paid for services to or for the partnership. Distributions of other income or loss to limited partners aren't net earnings from self-employment. For SIMPLE plans, net earnings from self -employment are the amount on line 4 of Schedule SE (Form 1040), Self-Employment Tax, before subtracting any contributions made to the SIMPLE plan for yourself. Qualified plan. 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 pension, and defined benefit plans are qualified plans. A 401(k) plan is also a qualified plan.

Participant. A participant is an eligible employee who is covered by your retirement plan. See the discussions, later, of the different types of plans for the definition of an employee eligible to participate in each type of plan. Partner. A partner is an individual who shares ownership of an unincorporated trade or business with one or more persons. For retirement plans, a partner is treated as an employee of the partnership.

Self-employed individual. An individual in business for himself or herself, and whose business isn't incorporated, is self -employed. Sole proprietors and partners are self-employed. Self -employment can include part -time work.

Not everyone who has net earnings from self -employment for social security tax purposes is self -employed for qualified plan purposes. See Common-law employee and Net earnings from self-employment, earlier. In addition, certain fishermen may be considered self-employed for setting up a qualified plan. See Pub. 595, Capital Construction Fund for Commercial Fishermen, for the special rules used to determine whether fishermen are self-employed. Sole proprietor. A sole proprietor is an individual who owns an unincorporated business alone, including a single-member limited liability company that is treated as a disregarded entity for tax purposes. For retirement plans, a sole proprietor is treated as both an employer and an employee. 2.

Simplified Employee Pensions (SEPs) Topics This chapter discusses:

• Setting up a SEP

• How much can I contribute

• Deducting contributions

• Salary reduction simplified employee pensions (SARSEPs)

• Distributions (withdrawals)

• Additional taxes

• Reporting and disclosure requirements Useful Items You may want to see: Publications 590-A Contributions to Individual Retirement Arrangements (IRAs) 590-B Distributions from Individual Retirement Arrangements (IRAs) 3998 Choosing a Retirement Solution for Your Small Business 4285 SEP Checklist 590-A 590-B 3998 4285 8 Chapter 2 Simplified Employee Pensions (SEPs) Publication 560 (2025)