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Friday, August 23, 2013

What is the max credit allowed to SEP/401k plan ?

1 : I have a client that is an LLC SCorp. He stated that he had contributed 143K into a SEP for self, I thought he could only get a max of 50K credit allowed for his contribution, but his broker is saying that we need to give him the full contribution of 165K?
2 : I got a revised contribution schedule from his broker and lists that he WILL have made a contribution of 165K. He only contributed a total of 17K to 401K plan that covers him and 1 employee.

3 : Please advise what I am to report as Employee Benefits on his Sch C? 


Answer :

1 : The IRS precludes employees from contributing to their own SEP IRAs. The IRS does not mandate annual employer contributions to a SEP. Instead, employers choose to contribute to SEPs at their discretion.The maximum amount an employer may contribute to an employee's SEP IRA account equals the lesser of 25 percent of the employee's annual compensation or $50K, $51K for 2013, whichever is less. This limit also applies to owners of incorporated businesses and LLCs electing to be recognized as corporations for federal tax purposes.
2 : Employer contributions to a 401(k) are the matching portion of the pre-tax payroll deductions that an employee makes into his 401(k) plan. A 401(k) plan are part of a defined contribution plan where an employee contributes a set percentage or dollar amount to the plan, while the employer provides a set percentage or dollar matching contribution.

3 : I am not sure what it means; If you're the owner of an S Corp, you are classified as a W-2 wage earner and must be on payroll. Compensation for…Read more…

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