Sch C with a SEP Contribution made outside of Company Account

[JMO]

Hello All,

A SEP plan was setup in 2015 by a client. The client is a SMLLC taxed as a sole proprietor. She made a contribution as the "employee" to her individual IRA from her personal funds, but also made a contribution from her personal funds on behalf of the business for the employer's portion. It was not made from the business bank account. I've read that the employer portion must be contributed 100% by the business for tax deductability by the business.

My question: Will making a journal entry for the employer's portion in the company books suffice as 100% contributed by the business, or does it fail to meet that definition? In other words, was the owner allowed to make the employer portion from her personal funds and not from the business funds?

[Burke]

Sounds like she made an IRA contribution and a SEP contribution? She could make a contribution to her IRA based on the Schedule C earnings. She is not an employee. There is no employer-employee relationship on an LLC taxed as a sole proprietorship. Therefore, she could make a contribution to her SEP from her own funds. The question is, which one gives her the bigger deduction. The "business" does not deduct anything paid to either of these plans, so there is no journal entry to make.

[JMO]

Burke,
Thanks for responding. As a technical SEP plan question, would the plan collapse if the plan is titled in the name of the company, but the employer contribution into the company-titled SEP was made from personal funds by the sole proprietor?

[Burke]

I don't think so, but she may wish to check with the custodian. She can always set up a SEP in her name for 2015 up to the filing deadline plus extensions and roll the funds over.