LLC and SEP

[abby]

A 2 member LLC, no employees.

One LLC member has been filing their 1040 with a SEP deduction - the $$ are paid directly by the member and not out of the LLC.

The other LLC member knows this, is not interested in making a SEP contribution.

Have not yet tracked down the 5305-SEP(if it exists at all) to see if it is filled out in the name of the LLC or the individual.

Two questions
1. Although I've started researching SEP corrections, there is lots of information and I haven't yet identified something similar to this scenario. Has anyone out there had experience fixing one like this?

2. Since the two members ultimately would have contributions passed through to them on the K1 and treat them as SE SEP on the 1040, are they required to make equal contributions? Would only one member's interest in the SEP disqualify the SEP as an option?

[Bees Knees]

From TTB, page 13-16

Where to deduct. Employers deduct contributions to SEP IRAs
as follows.
• Sole proprietors. Deduct contributions made on behalf of employees
on the pension and profit-sharing plan deduction line
of Schedule C or F (Form 1040). Deduct contributions made on
behalf of the sole proprietor on line 28, Form 1040.
• Partnerships. Deduct contributions made on behalf of employees
on line 18, Form 1065. The partnership must make the contribution
on behalf of the partners and report the amount on
line 13 of the partner’s K-1, code R.

In other words, partners of a partnership (including a 2 member LLC taxed as a partnership) cannot make their own SEP contributions like a sole proprietor. Although it is deducted by the partner in the same way a sole proprietor deducts the contribution, it has to first originate with the partnership making the contribution on behalf of the partner, and that requires making contributions for both partners.

I would suggest having the partnership set up a SIMPLE plan if the other partner does not want to participate and do the 3% match rule, meaning the partnership only matches for the partner who actually participates.