Discussion:SEP-IRA employer contribution
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Discussion Forum Index --> Tax Questions --> SEP-IRA employer contribution
| 1 February 2006 | |
| I have a doctor with a SMLLC that has a SEP. The doctor always maximizes her contribution at 25%, though limited to 20%. My question (DUMB!) is, if she is contributing the max for herself, is she required to contribute the max for her employees? If so, would their contributions be at 25% or 20%? I thought that the plan doc would state the contribution percentage, but the administrator wouldn't tell me what it states. | |
| 1 February 2006 | |
| The contribution rates must be uniform. Thus, if the owner is contributing 25% (which computes out to 20%) on his own behalf, he must contribute 25% on behalf of any eligible employees as well. | |
| 1 February 2006 | |
| But, if the plan is set up at 15%, say, wouldn't everyone be limited to 15%? | |
| 1 February 2006 | |
| Some of the old plans that were not updated for the 2001 EGTRRA are still around, in which case the limit would be 15%. | |
| 1 February 2006 | |
| This may not apply, but keep in mind with a SEP, the employer can place certain limits on who is eligible, namely employees who are at least 21, who worked 3 out of the last 5 years and received at least $450.00 in compensation in the calendar year. | |
| 2 September 2008 | |
| SEP plan question
I have Dr who has a relatively new PLLC, through which he is now employing a large number (20+) of employees but none who have worked for him in any 3 of the past 5 years so the plan. The question is can he make a SEP contribution for himself (and his wife who has been doing the bookkeeping since he started in his practice) only, each year ....until his employees each meet the eligibility requirements of working for the PLLC for 3 out of the past 5 years?... | |
ReadMyLips (talk|edits) said: | 2 September 2008 |
| First thought--doctors aren't allowed to be an LLC, at least in California. You might want to check into that.
Other than that, she needs to contribute the same % for employees that he uses for herself. An Example: If her income is $400k then she could use 13% +/- to get the maximum 44,000 deduction for herself and have to contribute that % for employees based on their gross wages. If her income is only $200k then she would need to use a higher % to get the max and have to contribute the same % for employees. Hope that helps. | |
| 2 September 2008 | |
| The years-of-service requirement applies to the doctor and his wife as well as unrelated employees. If the doctor had been self-employed for 3 out of the last 5 years, and his wife was a W-2 employee of his self-employed activity for 3 out of the last 5 years, and the PLLC is a disregarded entity for tax purposes, I'd think they'd both be eligible. If the PLLC isn't a disregarded entity, the clock IMHO starts over when the PLLC hired the doctor and his wife.
(FWIW, in Oklahoma, a doctor can be a PLLC, so the prohibition against medical PLLCs isn't a nationwide thing - AFAICT, CA doesn't allow PLLCs at all.) | |
| September 3, 2008 | |
| I believe service for a predecessor employer (such as the doctor himself) carrying on the same trade or business could be credited to the years of service requirement.
Even if the doctor makes $400,000, if he wants to contribute the maximum on his own behalf, he needs to set the contribution rate at at least 20%, since only the first $230,000 (the sec. 408(k)(3)(C) limit as adjusted for inflation) of compensation can be counted. The contribution for lower-paid employees could be lower under the permitted disparity (integration) rules, but if you are considering that, it's probably worth considering other plan designs, too. | |
