SEP IRA LLC question
I formed a single member LLC (without any corp elections). The single-member LLC (instead of me personally) is a member of a multi-member LLC without any corp elections. My single-member LLC and the multi-member LLC don’t have any regular W2 employees, just us members/partners.
I provide my work to this multi-member LLC and get a K-1 from it showing my income in Box 14 (self employment earnings). The K-1 is issued to my SSN, not to my single-member LLC, because my single-member LLC is a disregarded entity. I pay self-employment taxes on this income. This is my only income. This is earned income. All good so far.
The problem is:
The multi member LLC didn’t and doesn’t adopt a SEP IRA plan and don’t want to do it in the future. so I adopted a SEP IRA plan for my own single-member LLC at Fidelity, and made contributions to my account, and also put this amount in my schedule 1 Line 15 already.
I suddenly realize partners are not allowed to have their own SEP IRA plans. According to IRS:
“Can each partner in a partnership maintain a separate SEP plan?
No, only an employer can maintain and contribute to a SEP plan for its employees. For retirement plan purposes, each partner or member of an LLC taxed as a partnership is an employee of the partnership.”
So as a partner of the multi-member LLC, I’m not supposed to have my own SEP IRA. But as a single-member LLC owner, without considering the multi-member LLC, I (the single-member LLC) should be able to set up the SEP IRA. Am I allowed or not?
Thank you.
Permalink Submitted by William Tuttle on Wed, 2021-10-13 12:19
You are considered an individual partner in a partnership.
Your above cite from the IRS applies.
Your SEP IRA contribution is an excess contribution and must be returned with earnings by 10/15 and if already filed your 2020 tax return amended.
If this was for a 2020 contribution, you have very little time if possible to accomplish this with the SEP IRA custodian.
If this excess contribution and earnings are not removed by 10/15. The employer will be required to file a 2020 Form 5330 subject to a 10% excise tax penalty each year until the excess contribution is removed subject to a 10% early withdrawal penalty if <= age 59 1/2.
Permalink Submitted by wenqin wang on Wed, 2021-10-13 20:08
Thank you. I’ll remove it now (I have two days to remove the excess). too bad my single-member LLC does not qualify for SEP IRA.
Permalink Submitted by Christina Brown on Fri, 2022-01-28 02:35
I have seen it stated that a partner (even an LLC) in a partnership LLC must have a SEP as an employee of the partnership. Makes sense, I guess. But if the partner in the LLC (#1) is an LLC (#2), does the SEP account still go in the end human being’s name? How does this work in practice? The end goal is to have a SEP. The comment above says “individual partner in a partnership”. Are we sure that doesn’t mean individual person ? Does being an LLC partner in an LLC hamper the ability to have a SEP altogether? Because how could LLC #1 make SEP contributions for LLC#2?Would being taxed as a corporation allow LLC #2 to form a SEP?In the thread above, I don’t see a lot of support for the responses.Thank you
Permalink Submitted by Christina Brown on Fri, 2022-01-28 02:50
Forgot to add that my LLC (#2) is a medical practice under a medical group (LLC #1). W2 employees of the group have 401k plans. I hadn’t been offered to participate in that.