LLC SEP IRA
Husband and wife are 99%/1% members/owners of an LLC. LLC is taxed as a partnership so 99% of the income goes on Husband’s K-1 and 1% goes on Wife’s K-1. But they file jointly so from a tax standpoint it’s moot. Wife’s 1% share of partnership income has been approx. $400 for many years. There are no non-owner employees.
Husband has been making contributions to a SEP account of his own based on the above LLC K-1 income, but wife never established nor funded a SEP account for her. I would think that as a co-owner she would have to make the same % contribution as Husband has. Yes, “employees” < $550 are not eligible, and yes the IRS publication says that "in certain contexts" LLC owners are considered as employees ... but for the purposes of an LLC wife/owner who earns <$550 from the LLCs, must they make the same % contribution as the LLC husband/owner.
I know if wife is a true “employee” she would not be eligible. But as an “owner” must she receive the same % contribution as her husband/owner?
Thanks!
Permalink Submitted by Alan - IRA critic on Thu, 2015-10-01 03:22
As far as I can tell, the partners must be treated as employees and the LLC employer makes the contributions. Contributions must be the same % ( 0 to 20%) for both partners. So if wife’s 20% of net SE income is under the 550 threshold, no contribution is made, but for any year if her income exceeds the threshold a contribution MUST be made. Could be issues if for a past year a contribution should have been made. Note that the 550 can be reduced for any year by completing a new 5305 SEP and that would make her eligible for contributions.