Disallowed and excess SEP contributions

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Topic Author
futurepreretiree
Posts: 1
Joined: Wed Oct 13, 2021 11:26 pm

Disallowed and excess SEP contributions

Post by futurepreretiree »

Former CPA’s practice is closed and they are no longer reachable.

I am a partner in a business that generates over 90% of my regular income. Payments are made regularly to my S-corp. The profits are distributed, but it’s non-passive earned income, subject to self-employment tax. I pay myself a normal salary ($100-120K) as an employee of that S-corp (single-member LLC).

The new CPA says that I’ve been doing this wrong, because the contribution limit is determined by my w-2, meaning that I would have been capped at $30K for last year and need to contact the custodian to undo this problem.

The partnership has no employees. The other partners use traditional IRAs only.

If I am not allowed to have a SEP funded with K-1 income, would I be allowed to have a solo 401k instead? The immediate goal is to fix the excess payment and my understanding is that I have to remove the excess plus gains and file Form 5329. My goal after that is to achieve the maximum allowed contribution to a tax-advantaged account.
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