Question for the Money Doctors

Question submitted on Apr 4, 2011.

Question

My question relates to SEP Plan contribution & deductibility:

I have three different sources of income:

W-2
General Partnership Income
S-Corp Income

I participate in a 403(B) retirement plan through my employer and I also participate in Roth 401K plan through my employer. I would like to know whether I can open up a SEP-IRA account given that I currently participate in the above retirement plans, and I want to know the following:

1) If I can open up a SEP IRA then should it be opened under the S-Corp or the Partnership?
2) What happens if you do not take a Salary from your S-Corp profits does this prevent me from opening up a SEP account for that S-Corp?
3) How does the overall AGI effect SEP account setup? My AGI is above $300K but most of it is from W-2.
4) If I am allowed to make the contribution then where do I deduct it? On 1040 Page 1 Line 28? or on the Corporate tax return/partnership tax return?
5) Generally speaking is a 401K a Defined contribution or Defined benefit plan?

Answer

1.  If you have employees in either the partnership or the S corp., you can't have a plan unless all the employees are also covered.

2.  You can open a SEP account for your S Corp, but only employees who receive wages will be covered.

3.SEP contribution limit would be based on the compensation base in the plan.  If in the S corp, it would be your W-2 compensation, or if in the partnership, your share of partnership self-employment income.

4.  if through an S Corp., the deduction is on Form 1120S.  If through a partnership, the deduction is on page 1 of Form 1040.

5.  A 401K is a defined contribution plan.

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