Director Fee

Submitted by David Hunter on Mon, 2020-04-20 19:51

Individual is an employee/officer/majority shareholder of a C Corporation that offers a SEP Plan in which it contributes 10% of each employee’s W-2 compensation to the SEP Plan. The 2019 contribution from the C Corporation for Individual was $30,000 ($300,000 W-2 Wages x 10%). Individual is also a director of the same C Corporation and received $50,000 as “director fees” in 2019 which were reported on a 1099-Misc. as nonemployee compensation/self-employment income. Treas. Reg. § 31.3401(c)-1(f) (a director of a corporation in his capacity as such is not an employee of the corporation). May Individual establish a separate SEP for his 2019 self-employment director compensation? If so, how much can he contribute to such SEP for 2019?



Submitted by William Tuttle on Mon, 2020-04-20 22:36

  • The 2019 compensation limit was $280,000. So the maximum SEP IRA contribution was $280,000 * 10% = $28,000. There was a $2,000 excess SEP IRA contribution. The C–Corp needs to refer to the IRS SEP IRA fix it guide. See mistake (6) Contributions to the SEP-IRA exceeded the maximum legal limits. Use the IRS Employee Plans Compliance Resolution System (EPCRS) to correct the error.
  • Officers and directors are considered to “control” the organization. I do not know if as a business owner paid by the same corporation they would be subject to Controlled or Affiliated Service Group rules. These rules are very complex, but if they are found to be either, their business would not be eligible to adopt it’s own employer retirement plan.
  • This really needs review by an retirement plan specialist and/or ERISA lawyer.

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