Updated October 19, 2026. Quick answer: Form 5305-SEP is the IRS model agreement an employer signs to set up a simplified employee pension (SEP) that makes contributions to employees’ traditional IRAs. The contribution cap printed on the form is the smaller of $41,000 or 25% of compensation, marked as subject to annual adjustment, and the form says not to file it with the IRS.
What Form 5305-SEP is for
The instructions open with the purpose: “Form 5305-SEP (Model SEP) is used by an employer to make an agreement to provide benefits to all eligible employees under a simplified employee pension (SEP) described in section 408(k).”
The form describes a SEP in plain terms: “A SEP is a written arrangement (a plan) that provides you with an easy way to make contributions toward your employees’ retirement income.” The employer is the party who signs and adopts the agreement, and the contributions go to IRAs for employees. The form says “You make contributions directly to an IRA set up by or for each employee with a bank, insurance company, or other qualified financial institution.”
Two limits on the kind of account are printed. “You may not make SEP contributions to a Roth IRA or a SIMPLE IRA.” “Making the agreement on Form 5305-SEP does not establish an employer IRA described in section 408(c).”
Who must be covered and who can be left out
The form requires broad coverage: “All eligible employees must be allowed to participate in the SEP.” Its definition is “An eligible employee is any employee who: (1) is at least 21 years old, and (2) has performed” service for the employer in at least 3 of the immediately preceding 5 years. The form also says “You can establish less restrictive eligibility requirements, but not more restrictive ones.”
On the meaning of service, the form says “Service is any work performed for you for any period of time, however short.”
Three groups do not have to be covered, according to the instructions: “employees covered by a collective bargaining agreement whose retirement benefits were bargained for in good faith by you and their union”, “nonresident alien employees who did not earn U.S. source income from you”, and “employees who received less than $450* in compensation during the year.”
| Item | As printed on the form |
|---|---|
| Age rule in Article I | “of all employees who are at least years old (not to exceed 21 years old)” |
| Service rule in Article I | “in at least years (not to exceed 3 years) of the immediately preceding 5 years” |
| Pay floor in Article I | “employees whose total compensation during the year is less than $450*.” |
| Pay counted (item A) | “Based only on the first $205,000* of compensation.” |
| Annual cap (item C) | “Limited annually to the smaller of $41,000* or 25% of compensation.” |
| Rollover timing | “within 60 days of receipt, you place those funds in the same or another IRA” |
| Amendment copy to participants | “within 30 days of the effective date of any amendment to the SEP” |
Contribution rules and the printed limits
The agreement fixes how contributions are shared. “The same percentage of compensation for every employee.” The instructions repeat the cap: “You may make an annual contribution of up to 25% of the employee’s compensation or $41,000*, whichever is less.”
The dollar figures on the form carry a footnote. “For 2005 and later years, this amount is subject to annual cost-of-living adjustments.” A reader should therefore treat the printed dollar amounts as the figures on this revision and look up the current announced amounts before adopting the plan.
Employers are not forced to contribute every year, but the form sets a rule for when they do: “You are not required to make contributions every year, but when you do, you must contribute to the SEP-IRAs of all eligible employees who actually performed services during the year of the contribution.” The form also bars discrimination: “Contributions cannot discriminate in favor of highly compensated employees.”
When not to use Form 5305-SEP
The instructions list situations where this model form is the wrong tool. “Do not use this form if you:” The first item is “Currently maintain any other qualified retirement plan.” The form adds that “This does not prevent you from maintaining another SEP.”
Other items include “Have any eligible employees for whom IRAs have not been established.” and “Use the services of leased employees”. A form that provides for employee deferrals is also excluded: “Do not use Form 5305-SEP for a SEP that provides for elective employee contributions even if the contributions are made under a salary reduction agreement.”
Parts of the form, as printed
The form is two pages. The agreement is short, and most of the length is instructions for the employer and information for the employee.
| Part | As printed on the form |
|---|---|
| Heading | “Simplified Employee Pension” |
| Article I | “Article I” “Eligibility Requirements (check applicable boxes” |
| Article II | “Article II” “SEP Requirements (see instructions)” |
| Item B | “The same percentage of compensation for every employee.” |
| Item D | “Paid to the employee’s IRA trustee, custodian, or insurance company (for an annuity contract).” |
| Signature block | “Name and title” |
Is it filed, and what the employer must hand out
The form answers the filing question directly: “Do not file Form 5305-SEP with the IRS.” “Instead, keep it with your records.”
The agreement counts as adopted only after steps are done: “IRAs have been established for all your eligible employees;” “You have completed all blanks on the agreement form without modification; and” “You have given all your eligible employees the following information:”
An employer that follows the process is relieved of some annual reporting: “are not required to file the annual information returns, Forms 5500 or 5500-EZ for the SEP.” The form notes an ERISA limit on that relief for some employer-influenced IRAs.
For the government’s own pages, see the IRS SEP plan questions and answers and the Publication 560 page. The form itself points readers to Pub. 560 and Pub. 590 for more.
Information for the employee
The second page speaks to employees. “All amounts contributed to your IRA by your employer belong to you even after you stop working for that employer.” On timing of deductions for the employer, “Contributions made for a particular tax year must be made by the due date of your income tax return (including extensions) for that tax year.”
On withdrawals: “You may withdraw your employer’s contribution at any time, but any amount withdrawn is includible in your income unless rolled over.”
Which revision applies
The edition read for this page is Form 5305-SEP (Rev. December 2004), which is the revision irs.gov served when it was read on 2026-10-19. Check the revision printed on the form you are adopting, because a later revision can change the eligibility wording, the dollar amounts and the footnote on annual adjustments.
Common mistakes
- Filing the signed agreement with the IRS. The form says “Do not file Form 5305-SEP with the IRS.”
- Using this form while another plan is in place. The form says not to use it if you “Currently maintain any other qualified retirement plan.”
- Adopting before every eligible employee has an IRA. The agreement is adopted only when “IRAs have been established for all your eligible employees;”
- Altering the blanks. The form requires that “You have completed all blanks on the agreement form without modification; and”
Related: SEP IRA contribution limit, Solo 401(k) vs SEP IRA, and SEP IRA employee deferrals.
Sources
- Form 5305-SEP (Rev. December 2004), Simplified Employee Pension-Individual Retirement Accounts Contribution Agreement: https://www.irs.gov/pub/irs-pdf/f5305sep.pdf
Read from the agency documents linked above on October 19, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.