SEP IRA – Partnership with w2 employee & k1 (SE earnings) Owner/Employer/Partner

Submitted by Eli Malakan on Fri, 2021-09-10 21:48

Operating Business structured as a LLC and taxed as a Partnership.

Question at hand relates to Tax Year 2020.

There is 1 employee paid via w2 and all the business income passed through to the owner/employer/partner via k-1 and subject to SE tax as all is SE earnings.

Employer/Owner’s SE earnings (net of SE tax and proposed SEP contributions) exceeds $285K (the 2020 compensation limit for calculating the contribution).

Employer/Owner wants to maximize his contribution for himself at $57K which is 20%. From my reading of the “Rate Table for Self-Employed” included in publication 560, that means a 25% contribution needs to be made for the employee/s. Is this accurate?

I understand this needs to be funded by 9/15/21 (when we file the 2020 return) to be effective for 2020.
Thank you,



Submitted by John Peterson on Thu, 2021-09-16 19:08

Too late now but this employer should have adopted a profit sharing plan yesterday effective for 2020 using an allocation formula (permitted disparity or cross tested which would have substantially reduced the contribution rate for the 1 employee.

Submitted by William Tuttle on Thu, 2021-09-16 19:44

The self-employed 20% contribution rate and the W-2 employee’s 25% contribution rate are exactly the same 25% of compensation. The self-employed individual’s employer contribution itself is not compensation and the 20% of net earnings from self-employment (earned income) = business profit – 1/2 SE tax correctly calculates this.

Submitted by Shawna Blainm on Wed, 2022-03-16 18:17

How are contributions made for a SEP IRA for a Partnership LLC with multiple employees. Does each partner write a check or does the LLC write the checks?

Submitted by William Tuttle on Wed, 2022-03-16 20:17

The partnership is the employer of both W-2 employees and partners.
Only the partnership may adopt the SEP IRA and must make the SEP IRA employer contributions from the partnership’s accounts.
The partner’s Self-Employment Earnings and SEP IRA contributions are reported on the partner’s Form K-1 (1065).
This should really be managed by a tax professional.

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