Discussion:Consumer Questions on S-corp SEP IRA
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Discussion Forum Index --> Consumer Questions --> Consumer Questions on S-corp SEP IRA
The following questions from non-pros (or one-time/non-profile users who appear to be non-pros), and the related responses, have been moved from a similar discussion in the tax pro forum:
| 9 January 2007 | |
| Getting back to the original question on this thread ... I am using TurboTax for Business to complete my 1120S for TY 2006 ... this is my first year filing for my corporation as an S-Corp (converted from a C-Corp). I own 100% of the shares of this S-Corp, am the only employee/officer, and contributed $7875.00 in TY 2006 via Profit Sharing and Money Purchase plans against $31500 in W-2 income.
TurboTax for Business states the following in its interview question for entering "Pension and Profit Sharing Plans" (which includes defined contribution and SEP): "Note: Do not include contributions made to any retirement or deferred compensation plan on behalf of shareholders who own more than 2% of the corporation's stock. Those amounts should be included in the officers' compensation." It applies this number of 1120S line 17 if I enter the amount here. I don't know what they are referring to in the quote above ... how would putting it in officers' compensation make it a writeoff for the S-corp? Unless they are implying that it should be included in W-2 income and then use an above-the-line adjustment on 1040 Line 28??? But Instructions for 1040 Line 28 reference Publication 560 which indicates that S-Corps should use 1120S to write off these contributions!?!? The 560 instructions also indicate that you should not include contributions on a W-2 unless it was under a SAR-SEP plan, which mine is not. Thoughts?? | |
| January 9, 2007 | |
| Can't help with TurboTax issues, but generally, the 1120S shareholder, no matter how much, gets the SEP deduction right off the 1120S. No addback to W2. That addback is for LLC members/partners...so you understand it right, now to get the program to do it right... | |
| 9 January 2007 | |
| TurboTax for Business is simply "advising" of putting retirement contributions for >2% S-Corp shareholders into the officers' compensation rather than on line 17 ... I can put in there anything I want to.
I *Want* to agree with you ... but note this from the instructions for 1120S line 7 (Compensation of Officer): "Include fringe benefit expenditures made on behalf of officers and employees owning more than 2% of the corporation's stock. Also report these fringe benefits as wages in box 1 of Form W-2." and "Report amounts paid for health insurance coverage for a more than 2% shareholder as an information item in box 14 of that shareholder's Form W-2. A more than 2% shareholder may be allowed to deduct such amounts on Form 1040, line 29." So, Retirement Plan contributions are fringe benefits ... we know that. So, if you are allowed to use an "above the line" adjustment on 1040 for Health Insurance Premiums that are added to W-2 income, are you allowed to use an "above the line" adjustment on 1040 line 28 for Retirement Plan Contributions that are added to W-2 income? And I presume that the amounts added to W-2 are simply for income tax purposes and are not to be included in amounts for FICA and Medicare. Further thoughts?? | |
| January 9, 2007 | |
| What you're reading doesn't apply to retirement plan contributions, tho'. They're not a W2 addback. Proceed with the right answer and you'll be jess fine....! | |
| 10 January 2007 | |
| Thanks for all your guidance JR1 ... I truly appreciate your input. | |
| 1 February 2007 | |
| When determining gross salary for purposes of calculating the amount of SEP-IRA contribution, if the SEP-IRA contribution is for an employee who is also a >2% S-corp shareholder, and the company paid health insurance premiums for that employee, is the SEP-IRA based on "base salary" or "base salary + health insurance premiums"? The health insurance premiums are included in Box 1 of W-2, but is _not_ included in FICA or Medicare wages, so which salary amount is used for SEP-IRA calculation? Thanks. | |
| February 1, 2007 | |
| I've learned here that it includes the health insurance addition. | |
| 1 February 2007 | |
| The 9 Jan 2007 entries for this discussion don't seem to address this particular question. Is there some other discussion where this is explicitly answered? Or do you have another source for your answer? Thanks. | |
| 1 February 2007 | |
| I don't know what state your in, but in CA a late anuual payroll tax return gets you a automatic $1000 penalty. | |
| February 1, 2007 | |
| Sid, it's in one of the many threads about the proper treatment of health insurance for S corp owners. The technically correct thing to do is to add it to the W2 in box 1, but most of doing W2's in January don't have the info necessary to include it, so we merely don't deduct it on the 1120S and then pick it up on the 1040 anyway. The tech police scream that it's not the same thing, primarily due to this one thing...that by adding the insurance to the W2, you increase the amount subject to retirement contributions. To me, no big deal...but for the excrutiatingly correct, there it is. | |
| 12 March 2007 | |
| Following up on an earlier question/response, if prior year SEP contribution made by Schedule C, and the same SEP is used for the current year contribution, except that the business is now a S-Corporation, then would the owner need to comply all over again with the new S-Corp plan docs which require 3 years of service, $450 in wages, etc (inasmuch as the owner's SEP is a carryover from a prior entity-Schedule C, and the S Corp is in its first year of existence in the current year. It seems that his 3 years of Schedule C might carryover to meet the new S-Corp requirements. Any thoughts? thanks, Jerry | |
| 12 April 2007 | |
| I setup S Corp beginning of 2006 and started contributing to SEP-IRA. I am paying myself salary through S CORP and sending a S COPR company check for 25% to my SEP-IRA account. The SEP-IRA account is my name and not company's. The SEP-IRA company told me they cannot keep it on company name.
So now I got a tax form (I forgot the title / number) from the SEP-IRA company which lists me as a owner of it. It also says that this information is being furnished to IRS. Now do I have to enter this on my personal taxes? If yes, how/where? If yes then how do I show the money came from the company account to my personal taxes? | |
| 1 November 2007 | |
| I have a SEP plan for my staff and myself. I understand that there is language in the IRS code that says that even though all participants must receive the same percentage contribution, that the highly paid individual may elect to only take that percentage on the first $100,000 of salary.
I need to find that part of the code, as an IRS agent is insisting that I put the same percentage away for me as for my employees, but I do not want to do so, as my retirement account is sufficiently funded. I actually want to discriminate against myself and pay the government taxes, but he won't let me. Thanks in advance! | |
| 1 November 2007 | |
| WOW this question reminds me of the demonstration in a school classroom where the teacher whispers a story to the first child who turns and whispers it the next and so forth until the last child tells the completely different story in the end. I guess I must be in a playful mood this AM. A march of 2006 question for all to read again bye | |
| 1 November 2007 | |
| Hi too answer your question you cannot and the IRS agent is correct. Employer contributions are discriminatory unless they are a uniform contribution rate for employees and employer to the first $220k of each employee maintaining the SEP. You cannot use a lower salary for you the contribution would not be uniform. bye | |
| November 1, 2007 | |
| Shocked. Usually the owner wants to put MORE away. Never head of one like this! Is there a way to accomplish what you're after? It's upside down thinking from what we normally do. . .cycling thru the options, sep, simple, 401k, p-s, pension....I'm drawing a blank on a way to reduce your contribution and increase theirs unless they're much older. In that case, the old pension would work, at great cost. | |
| 1 November 2007 | |
| You could reduce the owner's conttribution by using a SIMPLE plan, with the 3% match option, with the owner restricting his/her own deferral amount. The employees could all be given raises in amounts that would mimic, with the 3% match, the prior SEP contribution level. For thise employees who don't want to defer the "raise", they can just keep the incremental salary, and the owner saves a little on the matching contribution. OR..... could use the "2% for all employees" option for the SIMPLE. This would ensure that all employees get at least SOME retirement benefit (it sounds liek this is the motivation for the owner). -Bob | |
| November 1, 2007 | |
| Kind of what I was thinking, except the SIMPLE doesn't have all the strings you might like to keep folks connected to your biz. You need to 'splain to them the 25% early withdrawal penalty, which might do that job. And if the owner doesn't defer anything...and uses the 3% rule for the players only, then only they'd be in the plan. Good thinking RJ. | |
| 1 November 2007 | |
| My client has a simple IRA plan at the moment - is it possible for the to also establish a SEP. Publication 560 alludes to this ability. Thoughts? | |
Johnhuddleston (talk|edits) said: | 2 December 2007 |
| But he can terminate the simple IRA and start a SEP the next year, as I read it.
John Huddleston | |
| 31 December 2007 | |
| here is a question. Individual has PC (s-corp). She is a lawyer and does not have a retirement plan. Looking to do a SEP IRA in 08 for tax yr 07. Her salary was $100k. She employers her husband to do bookkeeping. He earned $15k from her PC. He works full time for another employer earning $90k and contributed to the 401k there, funding it fully. can he have $ put into a sep ira through his wifes pc(s-corp)?
Thanks Russ | |
| 31 December 2007 | |
| The answer to the question you asked is no, he cannot put anything into a SEPIRA through his wife's corp. But, the question you should have asked is can his wife, that is, his wife's corp contribute to a SEPIRA on his behalf? The answer to that question is...it depends. If he has no ownership interest in his employer then yes, his wife's SEP contribution on his behalf is not limited by his participation in a 401K plan through an unrelated employer. | |
| 1 January 2008 | |
| Knot, if he is an employee of the corporation and meets the minimum participation requrements, the answer is yes. | |
| 9 January 2008 | |
| At what point do ERISA rules come into effect? Case..Doctor Smith owns 100% of PC (SCorp). PC is 33% owner of LLC (Bigger DRs. Group). LLC has 18 Employees. Doctor smith wants to contribute to a SEPIRA from PC. Since he owns a PC that has 33% ownership in the LLC. Can he contribute to a SEPIRA in just his PC? or does he have to contribute to all of the employees of the LLC. Please help!!! | |
| 11 January 2008 | |
| Help. A friend owns several businesses, most S Corps and 1 C Corp. He is the sole shareholder of every company. He now runs most of his businesses through one S Corp and he maintains a small C Corp business. He wants to put some money away for himself as 2007 was a good year. He mentioned a SEP and some other retirement plan options that a financial planner had told him about. He pays and treats his employees well but at this point does not want to include them in the retirement plan. Now the question...can he do a Sep or some other type plan in his C Corp (where he is the only employee) and not do the same for his S Corp employees (25 people)? He said that he will likely do a 401k next year for his employees, but this year he wants to take care of himself. Can he? | |
| 11 January 2008 | |
| See aggregation requirements of 414(c). (credits to Riley2 for reminding me of this a year ago.) | |
| 29 February 2008 | |
| I have two clients who are equal partners in a partnership. One partner is covered by a 401k plan at his full-time job. The partnership would like to set up a SEP plan for 2007. Can both partners make the maximum contribution (20% of earned income using rate table for self-employed)? Is it correct that the contribution by the partner with the 401k plan would not be limited by that contribution? Thank you. | |
| 4 March 2008 | |
| I am somewhat confused on how to report my SEP. I am a partner in an LLC with one other partner, we each own 50%. Last year (2006) I set up a SEP for both of us, but contributed the amounts with different proportions thinking that we were considered self employed since all LLC income is pass through. We deducted these amounts from our 1040 and not the company as it was my understanding that this was the correct way. First question is, did I do this incorrectly? The second question is, if I did do this incorrectly, must I deduct the amount from the company only (1065) and must this amount equal my partner's amount under all circumstances? I want to contribute for 2007, but he does not want the company to contribute to his SEP. He would rather stay in a strong cash position. Thank you! | |
| 2 April 2008 | |
| I have a question regarding the service period for the SEP IRA. My client used to be a 4 member LLC and was taxed as a partnership. They started business in 2003 and dissolved at the end of 2006 when two of the partners ("H&W") split off from the other 2 partners ("3rd parties"). H&W continued the same business and elected S corporation status on January 1, 2007. The intitial S corporation return has been extended until Sep 15, 2008 so there is still time to make SEP IRA contributions for 2007. H&W previously set up self-employed SEP IRAs when they members of the former LLC. I do not know whether the 3rd parties set up any self-employed SEP IRAs in past years.
Can the LLC service period for H&W be considered for the "3 out of 5 year" requirement for the SEP IRA? Btw, H&W do not want to broaden the sevice period to "0 out of 5 years" because they hired a couple of part-time employees in 2007 and do not want to contribute anything for these employees. Any thoughts on this? I really appreciate your help. | |
| 11 April 2008 | |
| Okay, the above discussion has been really helpful, but I'm about to ask a few questions that are really basic: Are the owners of an S-Corp considered employees? If so, are they also required to contribute the same percentage to each employee (qualified by 3 year service, etc.)? Historically, the owners of the company I work for have opted for large distributions and minimal salary. What is the benefit of the large distributions/small paycheck scenario for S Corp owners, and would they benefit more significantly from taking large salaries to take advantage of the SEP? | |
