SEP IRA contribution

Submitted by michael steinebach on Mon, 2023-03-27 15:16

Client wants to reduce taxable income for 2022.

Single member S corporation. W2 wages of 18,000 and K1 income of 105,000.

Accountant calculated his maximum SEP contribution of 24K. However, I do not believe they use and K1 income for SEP contributions. Am I incorrect, or is the accountant?

I thought his maximum SEP contribution is 25% of 18,000.



Submitted by Alan - IRA critic on Mon, 2023-03-27 15:33

You are correct. K1 income cannot support a SEP contribution for an S Corp, just W-2 wages. Depending on MAGI and filing status, perhaps a 2022 TIRA deductible contribution can be made in addition to the limited SEP contribution.

Submitted by William Tuttle on Mon, 2023-03-27 23:38

  • Not to mention it is highly unlikely that $18,000 in wages on $105,000 in gross profits is proper.
  • The IRS and the courts have consistently held that an S-Corp must pay 2% shareholder-employees reasonable compensation.
  • It would be an extremely rare set of facts and circumstances to justify wages < 20% of gross S-Corp profit.

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