Husband/wife own S Corp 50/50 (no other employees) which has a SEP Plan. Subsequently, husband starts Sch C business (no employees). Are the S Corp and Sch C a controlled group resulting in both being covered by the S Corp’s SEP Plan? And, if that is the case, for the SEP contribution based on husbands Sch C earnings, which entity makes/funds the payment, the S Corp or the Sch C business?
Not totally sure, but my guess is that each entity funds its own contribution if the sole prop generates any net earnings. But if it generates a loss, it should not affect the contributions for the S Corp based on W-2 income. This is similar to a traditional IRA for a person with wage income and a side business that generates a loss, where Pub 590 A is clear that the loss does not reduce the wage income to which TIRA contributions can be applied.
Permalink Submitted by Alan - IRA critic on Wed, 2024-06-26 17:19
Yes, this is a controlled group treated as a single employer for SEP IRA purposes, and that is going to add complexity in determining the correct contributions from each entity including the potential for the sole prop to generate a loss.
Permalink Submitted by Jagates on Wed, 2024-06-26 17:56
Thanks for such a timely response!
I’m still not clear on which entity pays/funds the contributions into the employees’ SEP IRA accounts. Does the S Corp (plan sponsor) pay/fund only the amount due on the wages OR does it pay/fund both that amount and the amount due on the Sch C earnings (calc as per the worksheets).
Also, you raised the point re a potential sole prop loss. Does that sole prop loss get netted against the S Corp wages somehow when determining how much to contribute for that year? Or for the S Corp do you calculate the contribution based on wages and for sole prop there would be no contribution made for that loss year?