SEP IRA for S-Corp Source of Income

Submitted by Uli Bittenbinder on Tue, 2022-12-13 22:07

From my understand you need to have W2 income to be able to have a SEP IRA on an S-Corp? I had a CPA tell a client they could do a SEP contribution next year for 2022 without paying themselves income in 2022. Is that possible? Defiantly confirmed its an S-corp and not Self-employed.



Submitted by David Mertz on Tue, 2022-12-13 23:04

  • The SEP IRA contribution from an S-corp is limited to 25% of compensation for the year and that compensation must be reported in box 1 of the individual’s W-2 from the S-corp.  No W-2 for the year, no SEP contribution for the year.
  • Further, the S-corp is required to pay the S-corp’s shareholders a reasonable wage, so if the S-corp made a profit it would be improper for the shareholders to not receive W-2s showing some amount of wages paid.  https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-employees-shareholders-and-corporate-officers
  • Perhaps the S-corp needs a more qualified CPA.


Submitted by Jeffry White on Wed, 2022-12-14 17:24

Just to follow this, but on a tangent… A sole proprieter LLC that makes an S-Corp election for this year, takes a salary and will have a W2 for this year, has contributed in past years to a SIMPLE IRA with a match (both prior to the tax filing deadline, but not within the calendar year). For this year, two questions: 1.  Is the “match” calculated solely on the W2 salary? 2.  Must the contribution be made by the end of 2022 as is done with wage earning employees of the business, and is the “match” then required to be completed before the end of January 2023?



Submitted by Alan - IRA critic on Wed, 2022-12-14 17:59

  1. The match limit is the lower of the applicable % of W-2 salary or the amount of sole prop salary reduction contributions.
  2. The matching contribution deadline is the tax due date (3/15 for S Corp) or 9/15 with extension.


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