Individual IRA Contributions to a SEP
Client owns an S Corp. The husband receives a W2 while the wife does not. Both wife and husband have a SEP IRA from the past. The company made no contributions to the SEP IRAs.
1. They each made their individual traditional IRA contributions to their SEP IRAs. Is that allowed? For both husband and wife (no earned income at all)?
2. Since the company didn’t contribute to the SEP IRAs and they only made individual contributions they would not be considered to be covered by a retirement plan correct?
Thank you so much!
Permalink Submitted by Alan - IRA critic on Tue, 2021-03-09 19:58
A TIRA contribution can be made to a SEP IRA account, but it must be clearly flagged as a non SEP contribution or the custodian may miscode it as a SEP contribution on Form 5498. The usual spousal contribution rules apply to allow both spouses to make TIRA contributions.
Correct. But again, if the custodian shows a SEP contribution, then they will be treated as a retirement plan participant, and may not be able to deduct the TIRA contribution.
After the contribution is made, client should check their IRA statements to make sure that a SEP contribution is not indicated there, since that would result in the 5498 also indicating a SEP. The IRS gets the 5498 as well as client, but by then it may be too late to correct it.