USA SEP IRA CONTRIBUTIONS

[david salomon]

Hello
I live Miami, Florida.

I have a S-Corp and am the only share holder. I opened up a SEP IRA for my retirement. I pay myself via K1 instead of W2. I understand that businesses with W2 Employees are able to deduct 25% of their employees income when making contributions.

My question is how does this work if I am paid via K1 and not W2 income?

My accountant told me I can't do get any deductions for it. I am a little annoyed because I opened up the SEP IRA because she told me to do it.

Can anybody give me some guidance?

Thanks!

 

[Tyson]

You can not pay yourself via K1 instead of W2. You are an employee of your company and so the IRS requires that the company pay you at least a reasonably competitive salary via W2. If you don't give yourself a reasonable W2 salary, then the IRS will charge you back-taxes on the amounts you payed yourself under K1 as well as hefty penalties. Anything above and beyond a reasonable W2 salary can be paid to you via K1.

I'm not an expert on retirement services, but as far as I know there are no deduction minimums or limits on retirement plans. There are yearly contribution limits though. You probably can't make contributions to your IRA from your K1 income. I think you can only make deductions from 'earned income', income that is susceptible to FICA taxes. Thus, you will need to deduct it from your W2 income.