SEP IRA for LLC
Client is an LLC member that has a SEP. About $23,000 contributed for him for tax year 2011. He also has a side consulting business and is able to contribute an additional $20K+ due to his schedule C income. Does he need to have two separate SEP accounts? One for the LLC contribution and another for his separate business? I would think the answer is yes, but want to confirm.
Also his wife doesn’t work. Does the husband’s particapation in a SEP IRA preclude her from making a deductible IRA contribution? Since it is an employer sponsored retirement, I don’t think she can take the deduction, but wasn’t sure how the IRS treats SEPs versus Qualified Plans. He makes over $200,000 a year.
Thanky you!
Permalink Submitted by Alan Spross on Mon, 2012-03-05 17:23
He does not have to use two different SEP IRA accounts, but the SEPs are treated as defined contribution plans, so the maximum he can contribute in total is 50k for 2012 (49k for 2011). The SEP is also treated as a workplace retirement plan, so his wife will not be able to deduct her TIRA contribution as a result of their joint modified AGI. The MAGI is also too high for a Roth contribution for either of them, unless the 200k is a gross figure not adjusted for net earnings.
Permalink Submitted by Peter Lingane on Mon, 2012-03-05 19:37
Alan – Are you saying that there are two SEP agreements, one with the LLC and another with the sole proprietorship, but that each SEP can contribute to the same IRA?
Since you are allowing for only one 415(c) limit, I suspect that you are assuming the the client dominates the LLC. Suppose that it was a large LLC and that the client could contribute $50K to each SEP. Two agreements would be needed. Can contributions still be made to the same IRA?
Permalink Submitted by Alan Spross on Mon, 2012-03-05 21:42
Good point. My post assumed a single member LLC and this may not be a single member LLC.
If not, then the IRAs should be separate and all those rules regarding controlled groups need to be scrutinized to determine if separate 415c limits can apply or not. The more members there are the more likely separate limits can apply, but the LLC tax accountant should be consulted.
If he received a 5305 SEP, then that’s a good indication that the accounts need to be separate and also makes it more likely the 415c limits would also be separate, although that does not appear to be in play per the numbers posted.