SEP-IRA contributions

Forum|Forum|1 year ago
May 31, 2024
2 replies
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I am a self employed LLC and I receive income via w-2 salary and owner draws/distibutions

Question

Do I contribute to SEP based on total income or just my w-2 income?

Best answer by dmertz

Presumably you have an S corp, otherwise you would be receiving no W-2 from the LLC. The maximum SEP contribution is determined only by your compensation reported on the W-2. The owner draws or distributions are not compensation.

Presumably your S corp requested a filing extension, otherwise it's too late for a SEP contribution to be made for 2023. The S corp, not you, makes the contribution and is deductible on the S corp's tax return, not on your individual tax return.

dmertzAnswer

Employee

CburkeingaAuthor

the below info is taken from ITS Pub 560

All earnings are from work I performed…

from Pub 560

For a self-employed individual, compensation means the earned income, discussed later, of that individual.

Earned income.

Earned income is net earnings from self-employment, discussed later, from a business in which your services materially helped to produce the income.

Net earnings from self-employment.

For SEP and qualified plans, net earnings from self-employment are your gross income from your trade or business (provided your personal services are a material income-producing factor)

VolvoGirl

Employee

Is the W2 from the LLC or from other employer? What kind of LLC do you have? Is it a Single Member LLC? Did you elect it to be a S corp? If it is a SMLLC but not a S-corp then it is a disregarded entity and you file it as self employment on Schedule C in your personal 1040 return. And you do NOT pay yourself or give yourself a W2 and you don't take owner draws or distributions. Your personal income is just the Net Profit on schedule C. In which case you can only contribute up to the Net Profit minus 1/2 the Self Employment tax.

dmertz

Employee

Nothing received from a company that issues you a W-2 is income from self-employment. With no income from self-employment, you can't make any self-employed retirement contribution.