SEP IRA
Hello,
For an unincorporated business (self employed) that wants to offer a SEP-IRA:
1. Assume for an LLC with just 1 owner. The net profits won’t be known definitively until year-end. Accordingly, does the LLC simply contribute each month after determining the net profits of the previous month, for example, based upon the % of net compensation realized on a cash basis (effectively net cash profits less 1/2 self employment tax)? With such contributions being discretionary, even in months where there are net profits?
2. If an LLC has multiple owners, do the contributions made for each owner equal their % of ownership multiplied by the net profits multiplied by the % being contributed (up to 20% for self employed, limited to $250k of compensation – or $50k in contributions per person)?
3. If an LLC has 1 or more owners along with 1 or more employees, do the employees of an unincorporated LLC receives W-2 wages? If so, presumably the contributions made for them equal the % of their wages? If such employees don’t receive wages, then how are their contributions determined?
4. In the case of an LLC which is owned by a son, with related entities owned by other family members (e.g. aunt; father; etc)., does this automatically mean every entity must make the SEP-IRA available? What are the specific attribution rules for SEP-IRA’s?
I am looking into retirement plans for an LLC where the son (relatively young) is the sole owner with significant profits. There may or may not be other employees. I’d like to max out with a DC Plan that is not a qualified plan to avoid lots of administration, compliance, ERISA fiduciary requirements, etc. The SEP-IRA would appear to make the most sense if doable. Any feedback regarding this matter and other relevant issues would be appreciated. Thanks.
Permalink Submitted by mk foss on Fri, 2012-05-11 19:11
1. A one-owner SE business determines the SEP contribution once the income tax return is complete. Typically the contribution is made by the extended due date of the return. Some individuals make contributions throughout the tax year and catch up or allocate a payment to the next year once Form 1040 is complete.
2. If there is more than one owner, the SEP contribution is based on the earned income shown on Schedule K-1 for the partnership. Each partner uses the same percentage to apply against his or her particular share of the profit as adjusted on From 1040 for the SE tax deduction.
3. Employees of an LLC receive wages but the LLC members do not.The same percentage is contributed for the employee as for the owners. Because of the SE tax deduction, it appears that the employee receives a higher percentage. The maximum percentage is 25% of employee salary which is the same as 20% of LLC profit reduced by the front page SE deduction. The contribution on behalf of employees reduces the income that the LLL members determine their deduction with.
4. When you’re involved with related parties and multiple employers, you should consult a professional for assistance instead of relying on a forum such as this.