Self Employed SEP IRA

Submitted by n2b on Wed, 2019-07-24 21:24

My daughter has a solo private practice. As a Self Employer who files a Schedule C for her taxes, can she open an SEP IRA without having any employees? If so, then can she take the SEP IRA contribution as a deduction against her business income.
Currently she is contributing to a personal Roth IRA and not eligible for taking any deductions when filing the tax return.



Submitted by Alan - IRA critic on Wed, 2019-07-24 22:14

Yes, she can open a SEP IRA or solo 401k and also continue the Roth IRA contributions as long as her modified AGI is not too high.

Submitted by n2b on Tue, 2019-07-30 18:07

Thanks Alan for your response. By “solo” practice I meant that her business is that she is a counselor and has no other employees. My question was whether she can open an SEP IRA, make a contribution from her earnings as an employer contribution and take a business deduction. She may or may not make a matching elective employee contribution depending on whether there is enough surplus savings that year. I believe opening a solo 401K may not be practical because of the complex paper work required for a one-person business. I am told that the SEP IRA is much simpler. The main question in my mind is whether it is legally allowed to open a SEP IRA for the benefit of the owner who is also the only person in the LLC company.See the response to my original posting from Spiritrider. Now I am confused with opposing responses. Thanks for any further comments 

Submitted by William Tuttle on Thu, 2019-07-25 02:33

  • What do you mean by “solo” practice? She can not adopt either a SEP IRA or a one-participant 401k if she has “eligible” employees.
  •  A SEP IRA only allows employer contributions. A one-participant 401k allows the same employer contribution amount plus employee elective contributions.

Submitted by n2b on Tue, 2019-07-30 17:58

Thanks Spiritrider for your response. By “solo” practice I meant that her business is that she is a counselor and has no other employees. My question was whether she can open an SEP IRA, make a contribution from her earnings as an employer contribution and take a business deduction. She may or may not make a matching elective employee contribution depending on whether there is enough surplus savings that year. The main question in my mind is whether it is legally allowed to open a SEP IRA for the owner who is also the only person in the LLC company.See the response to my original posting from Alan. Now I am confused with opposing responses. Thanks for any further comments 

Submitted by David Mertz on Tue, 2019-07-30 18:40

  • All of the responses are in agreement.  There are no opposing responses.
  • Your main question has already been answered.  Yes, she is permitted to make a contribution to a self-employed retirement plan such as a SEP plan or a solo 401(k) plan.
  • As spiritrider said, employee contributions are not permitted to be made to a SEP-IRA (unless it is a SARSEP established before 1997, which this would not be).  Only employer contributions are be permitted to be made to the SEP-IRA under the new SEP plan that she would be establishing.  As self-employed, she is her own employer.
  • If she established a solo 401(k) instead, she would be permitted to make employee elective deferrals to the solo 401(k) in addition to any employer contribution that she can make, for a larger total contribution greater than what is permissible under a SEP plan.
  • The self-employed retirement deduction is an above-the-line deduction on Schedule 1, not a business deduction on Schedule C.

Submitted by alberto vega on Tue, 2019-07-30 20:03

I am a CPA and have some clients with like this one with solo 401k plans and the costs are not really that much. The large mutual fund companies like Fidelity, Vanguard and others provide these plans with small fees.

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