SEP IRA Details
Hello-
Client maxed out a 401k/457 through a W2 job. Both the client and spouse also did a Backdoor Roth for 2024. They also have a Schedule C for 2024 (about $30K profit in husband’s name). Wife is hired as an employee and makes about $7K.
Idea is to set up a SEP IRA and make the maximum contribution.
- Setting this up and contributing now still wouldn’t impact the 2024 Backdoor Roth since the 12/31/24 balance of the SEP would technically be zero?
- On the adoption agreement it lists the compensation for the SEP as “W-2 wages” Does this mean the husband (no W2 just net flow through on Schedule C) is not allowed to make a contribution? Or can a SEP contribution be made for both husband and wife?
- Does listing a minimum service requirement ever preclude an owner from contributing? For example, the business was setup a year ago. If they didn’t want to bother with the wife contribution they could list the service requirement as three years and then just only contribution for husband?
Thank you!
Permalink Submitted by Alan - IRA critic on Mon, 2025-03-10 13:36
Correct. The actual 12/31/2024 balance is used to determine the conversion taxes and a SEP contribution made after that date is not included in that balance.
A self employer owner can contribute based on net earnings from SE Sch C. Wages are not a requirement.
The owner and all employees are subject to the minimum service eligibility for the plan. This is usually addressed by the owner eliminating the service requirement for the first couple years, then adding a requirement for which they would qualify later on.