S Corp SEP IRA Contribution Max for Self Employed Financial Advisor
I’ve been told by a CPA that the max SEP contribution for a Financial Advisor (S Corp election) is 25% of W-2 wages (“reasonable compensation” PLUS 25% of the net business income (Box one of the K-1), and that this is because the 1099 he receives is in the name of the Financial Advisor himself, not the business name. Does this seem right?
Permalink Submitted by William Tuttle on Wed, 2022-03-09 15:36
First, an S-Corp’s 2% shareholder-employee is not self-employed. They are a 2% shareholder-employee of a one person S-Corp.
The maximum SEP IRA employer contribution is always 25% of compensation.
Compensation would be either
25% of an S-Corp’s 2% shareholder-employee’s W-2 Box 1 wages. Distributions can never be considered compensation.
20% of a self-employed individual’s self-employed earned income (net earnings from self-employment) = business profit – 1/2 SE tax.
The fact that the 1099 is in the name of the individual and not the S-Corp presents its own problems. That would indicate the payments were also made to the individual. How did the money get into S-Corp financial accounts in the first place?
Was the S-Corp adopted by the individual or the S-Corp? If the latter, the SEP IRA contributions must be made from the S-Corp’s financial accounts. Was this done?