My knowledge of retirement plans is limited to recording an individual's contribution on his 1040, knowing what the codes are on his W-2, etc. Partnerships, partners, and SEPs. (That other book has a nice chart that's very helpful, but a bit ambiguous on the point I need this time.) A partnership can form a SEP and contribute for all eligible employees, right? Does that include the partnership contributing for the partners? Does a partner function like a self-employed person when it comes to his 1040? Can the partner make his own SEP contribution separate from what the partnership does and use it as an adjustment on his 1040? Can he do this even if the partnership does not have a SEP? In other words, is there a way for a partner to save for retirement, more than just $4,000 in an IRA, without the partnership contributing big bucks to all employees also?
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partners are employees
Pub 560 or 590 ( I get those two confused sometimes) states that for retirement plans a partner is considered an employee. Then it also goes on to state that partners are self-employed. So, the publication basically says that both ways of funding are correct. I'll let another more experienced poster answer this, but I would say that a partner can open his/her own SEP based on SE earnings (GP and earnings that are not limited partner type) or the partnership can have a plan for the benefit of all employees, including partners. -
Thank You
Thank you, Josh. So, you read it as either/or also? It sounds like, from reading all the government gobblydegook, the partner is an employee to the partnership but the partner is still a self-employed individual on his Form 1040. Anyone else with experience with a partner contributing to his own SEP without the partnership having a plan?Comment
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The SEP must be set up by the partnership. For this purpose the partner is treated as an employee.Comment
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What the Pub says is correct. What you interpret it to mean is not correct. The pub is NOT saying you can do it either way.Originally posted by JoshinNC
A partner is treated as an employee for purposes of setting up a SEP. The term "SEP" refers to “Simplified Employee Pension.” So a self employed person, such as a partner in a partnership needs to be treated as an employee for purposes of being allowed to participate in the SEP. That means the SEP has to be set up through the partnership. The individual partner cannot set up his or her own SEP and make contributions like a Schedule C business.
The partner IS treated as a self-employed person only for purposes of the rules that require a special calculation for determining the contribution limits. An employee uses the W-2 wage for making this calculation. A self-employed person is required to reduce compensation by the contribution amount prior to calculating the contribution. Thus, if employee’s get 25% of W-2 wages contributed to the SEP, a partner (as a self-employed taxpayer) can only contribute 20% of net self-employed income after the ½ SE tax deduction.Last edited by Bees Knees; 05-26-2006, 08:30 AM.Comment
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We had this discussion before in this thread: http://www.thetaxbook.com/forums/sho...hlight=PartnerComment
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I couldn't find the earlier thread
but I knew this had been discussed. Thanks for the clarification on the contribution limits.Comment
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Thank You
Thank you all. I think Bees Knees should write for the IRS. I can understand him, and most on this board, better than the IRS pubs. Now, off to read that earlier thread.... But first, the reason for my question on SEPs was to find what options a partner has to save for retirement without contributing to his employee's (65-year-old employee working for the money now; already has his retirement funded) retirement also. Nothing except an IRA?Comment
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Set up a SIMPLE plan through the partnership. The SIMPLE plan allows the partner to contribute the max, while the partnership is only on the hook for contributing 2% or 3% of the employee's wages.Comment
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Thank You Again
Thanks to Bees and Josh and everyone for helping me compare plans.Comment
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