Definition
The parameters that determines whether a participant meets the requirements for certain retirement plans and/or plan benefits. Eligibility is defined in the plan document or IRA agreement .For employer sponsored plans, the plan sponsor determines eligibly, within statutory limits. Examples of eligibility include the following:
- An individual being eligible to make an Roth IRA contribution, by having eligible compensation and by the individual’s MAGI not exceeding the statutory limits
- An active participant’s eligibility to deduct a contribution to a traditional IRA is determined by his tax-filing status and MAGI
- An individual’s eligible to make salary deferral contributions to a 401(k) plan is determined by whether he/she has satisfied the age and service requirements
- An individual’s eligible to receive employer contributions is determined by whether he/she has satisfied the age and service requirements
Eligibility also refers to an employer’s eligibly to adopt/sponsor a retirement. The following semi-chart provides some examples:
|
Feature/ |
SEP IRA |
SIMPLE IRA |
SIMPLE 401(k) |
Solo-k/ |
Traditional 401(k) |
Money Purchase |
Profit Sharing |
Defined Benefit Plan |
|
Eligible Employer |
Any employer. Employers using the services of leased employees, maintaining any other retirement plan or ever maintained a defined benefit plan cannot use the form 5305-SEP. Must use other SEP document instead |
Any employer, providing the employer had no more than 100 employees with $5,000 or more in compensation during the preceding year. |
Any employer, providing the employer had no more than 100 employees with $5,000 or more in compensation during the preceding year. |
Any employer, providing only the business owners (which includes the business owners’ spouse by definition) are eligible to participate in the plan. |
Any employer. |
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Referring Cite
Governing plan document or agreement
Additional Helpful Information
The statutory eligibility requirements for employer sponsored plans vary among plan types. For instance:
- A 401(k) plan cannot require more than one year of service for eligibility purposes
- A SEP cannot require more than 3-years of service for eligibility purposes.
- For qualified plans, an employer can require no more than 1,000 hours of service during a 12-month period for purposes of determining 1-year of service .
- For SEP IRAs, a year-of-service is any period, however short.
