SEP from S corp and Sch C
Client 100% shareholder of an S corp where he is the only employee. He has been contributing to a SEP based on his earnings (hopefully just the salary). Now he wants to contribute more to the same SEP plan because he has a separate business that is a sole proprietorship reported on Schedule C. My reading is that he needs to have separate accounts. Is that correct?
Permalink Submitted by Alan - IRA critic on Tue, 2021-10-12 18:04
Not required, but might be advisable to reduce confusion and errors.
Permalink Submitted by Gary Goodman on Tue, 2021-10-12 18:33
I just found out that the person, not the S corp has the SEP. Contributing based on the Sch C income and the salary seems odd. I want to recommend that the S corp opens it’s own plan and the owner contribute separately to a SEP for his Sch C income. Do you think this is a better way?
Permalink Submitted by Alan - IRA critic on Tue, 2021-10-12 19:14
Yes, for the same reasons mentioned earlier. The S Corp must make the contributions but the SEP IRA should be titled to the shareholder, so both SEP IRAs will be in client’s name.
Permalink Submitted by Gary Goodman on Tue, 2021-10-12 21:04
I’m used to clients having investment people handle their retirement plans other than plain vanilla IRAs.
Permalink Submitted by William Tuttle on Wed, 2021-10-13 00:59
A SEP IRA is an employer retirement plan. The employer (S-Corp) sponsors the SEP IRA plan, but only individuals can open a SEP IRA account.
The S-Corp and the sole proprietorship are a Controlled Group and considered a single employer for retirement plan purposes.
Therefore, the sole proprietorship can make employer contributions under the same plan to the same account.
However, an employer can have more than one SEP IRA plan and an individual can have more than one SEP IRA account.
There are four (4) possible options:
One SEP IRA plan and one SEP IRA account
One SEP IRA plan and two SEP IRA accounts
Two SEP IRA plans and one SEP IRA account
Two SEP IRA plans and two SEP IRA accounts
My personal opinion is that option 2. gives you the optimal simplicity and clarity.