contribute to SEP by LLC with 50/50 partners

Submitted by Douglas Bauerband on Mon, 2020-03-30 16:42

client has LLC with 50/50 partnership and NO employees.

My client made 56k in 2019 and wants to contribute 14k (25% of the 56k)

a. Can he contribute his 14k to his SEP without the other partner contributing to his SEP?

or..

b. since a SEP considers all owners as employees, My client cannot cont. the 14k unless his partner contributes the same?

thank you for any help
Douglas



Submitted by Douglas Bauerband on Mon, 2020-03-30 19:05

client (Jeff) has LLC with 50/50 partnership and NO employees. For 2019 all income is being allocated to Jeff.  His partner will receive a zero K-1. Jeff’a income will be56k in 2019 and wants to contribute 14k (25% of the 56k)a. Can he contribute his 14k to his SEP without the other partner contributing to his SEP since his partner made zero income?or..b. since a SEP considers all owners as employees, Jeff cannot contribute the 14k unless his partner contributes the same, even though he made zero income?thank you for any help Douglas

Submitted by David Mertz on Mon, 2020-03-30 19:38

  • $14k exceeds the limit for $56k of self-employment income.  With $56k of self-employment income, the limit is generally 20% * ($56k – $56k * 0.9235 / 2) = $10,409 (or a bit more if the addition of other income reported on a W-2 results in exceeding the Social Security wage base).
  • To allocate all of the income to Jeff, I believe that that allocation must be reflected in the partnership agreement.  With no income allocated to Jeff’s partner, Jeff’s partner’s SEP contribution would be 20% * ($0 – $0 * 0.9235 / 2) = $0.

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