SEP contibutions by S-corp partner

[Jack from Ohio]

Client was sole proprietor for years. Established a SEP for himself. 2011 incorporated and obtained S-corp status. 4 members of S-corp.

Question: Can the client continue to fund the SEP he created as a sole prop?

[Randall]

Sole proprietorship was the 'employer' sponsor of the SEP. That business ended. Did he have employees? They would have to be considered in the change.

S Corp status, 4 members? Are you saying he and 3 others formed an LLC and elected to be taxed as an S Corp? Or did they form a corporation and there are 4 shareholders?

Either way, the new business must establish a new employer sponsored SEP plan. S shareholders' W2 compensation is the amount to determine eligibility for SEP contributions. Depending on level of W2 compensation, he might want to look at a SIMPLE plan (or 401k).

Once a new SEP plan is established, he can roll his old account into the new account.

[OldJack]

A SEP plan is a piece of paper. Contributions may be made to any SEP-IRA account, old or new, and different accounts for each participant.

[Randall]

Yes, on the individual side. But for new contributions, the plan is now a new plan sponsored by a different employer. On the employer side, that piece of paper needs to be changed. And usually on the individual side, the custodian has the employer name as part of the account name. That piece of paper needs to be changed too for new contributions.