SEP IRA

[JackieCPA]

I have a new client this year, they are an S-Corp.

They pay themselves and have other employees as well.

They generally put money into a SEP IRA for themselves (Shareholder) but nothing for employees.

Is the SEP IRA like other rules that if you have one you have to let employees have one as well if they want it?

[Catherine]

SEP plans belong to ee's.  They have to be 21 years old, been working for that company for 3 of last 5 years, and make at least $600 in prior year.  Er can make fewer restrictions, but not more.  Look at their Form 5305-SEP for their rules.   If eligible, same percentage goes to each ee.  

[jklcpa]

3 hours ago, TaxPreparer said:

I have a new client this year, they are an S-Corp.

They pay themselves and have other employees as well.

They generally put money into a SEP IRA for themselves (Shareholder) but nothing for employees.

Is the SEP IRA like other rules that if you have one you have to let employees have one as well if they want it?

 

SEP participation rules : must be 21, must have worked for the employer 3 of the last 5 yrs, had at least $600 in compensation from that business during the year.  The employer CAN make these rules less restrictive but not moreso, and employees can elect to not participate.  The employer must use and contribute the same percentage for all eligible employees.   Because the contribution is to an employee's IRA, it belongs to the employee and is 100% vested upon contribution. 

For these answers and more information, please see this IRS page and the linked pages it contains for rules of participation and for contributions.

[mwrightea]

Quote

 

Catherine is correct . You will need to follow Revenue procedure 2016-51 to make corrections and contributions for eligible employees.

[Richcpaman]

If, playing devils advocate here:

The business owners are contributing to a an account labeled SEP-IRA, but they are only putting in the $5,500/$6,500 amount per the IRA rules,  and NOT deducting it on the Corporate return, and only on the 1040, then they just need to relabel the account.

If they are deducting the SEP contributions on their SCorp return, and not contributing the same % to the eligible employee's, then they are in deep kimchi.

Rich 

 

[FDNY]

While the max for the more highly compensated owners can be up to lessor of 25% or $55K for 2018 they would probably get away cheaply on a few much lower paid employees.  But if it is a bigger company it could get expensive for the SCorp.

[jklcpa]

5 hours ago, Richcpaman said:

If, playing devils advocate here:

The business owners are contributing to a an account labeled SEP-IRA, but they are only putting in the $5,500/$6,500 amount per the IRA rules,  and NOT deducting it on the Corporate return, and only on the 1040, then they just need to relabel the account.

If they are deducting the SEP contributions on their SCorp return, and not contributing the same % to the eligible employee's, then they are in deep kimchi.

Rich 

 

 

I think it is still a problem even if the employer isn't deducting it on the corp return.  A SEP is an employer-sponsored defined contribution plan, and as such, even if the owners are putting in the flat dollar amount limit, the original post said this business does have other employees, so the business should be calculating the % of owner's compensation that the contribution represents and is required to contribute that same amount to each eligible employee's account.

[WITAXLADY]

looks like a draw..  - not deductible expense