SEP IRA contributions

We have a client who has a SEP IRA that was set up for his sole proprietorship Schedule C business (of which he is the only employee). We determine his allowable SEP contribution based on the performance (net income) from his Schedule C.

He also receives K-1 income from an unrelated partnership for which he is a general partner. This partnership has no relationship to his Schedule C. The income he receives from this K-1 is taxed as Self Employment income since he is a general partner.

In determining his allowable SEP contribution –are we allowed to include the flow through self employment income from the partnership in addition to the performance of the Schedule C? Are thought was no— the SEP would have to have it’s own SEP. In addition the partnership likely has employees whom would need to be allowed to participate.



  • K-1 income can never be used to adopt, maintain or contribute to an employer retirement plan (SEP/SIMPLE IRA or 401k).
  • 1065 K-1 distributions are consider self-employment income for income/SE tax purposes. However, for retirement plan purposes. The partnership is the employer who must adopt, maintain and make contributions for the partners who are considered employees. Those contributions would be deducted before K-1 distributions.
  • You are also correct on the reason. Otherwise, non-partner employees would be discriminated against.

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