SEP IRA contribution

[Questionguy101]

SEP IRA contribution amount is determined by the total compensation of an employee during the tax year. So does it mean contribution can only be made after the tax year has finished? If the employee is paid a fixed salary monthly and therefore his yearly salary can be easily forecasted, can the contribution be made before the tax year ends?

[AuditorTurnedGood]

As long as

the contribution is made by the due date of the tax return, you're ok. During the year is OK as well. the IRS has a great pub on this I look to often, number 560, and the Tax Book covers this on 13-2. I have a client who is an S-corp and has a SEP for himself as the only employee. Contributing the max to his SEP saved him big time last year on taxes.

[Questionguy101]

the contribution is made by the due date of the tax return, you're ok. During the year is OK as well. the IRS has a great pub on this I look to often, number 560, and the Tax Book covers this on 13-2. I have a client who is an S-corp and has a SEP for himself as the only employee. Contributing the max to his SEP saved him big time last year on taxes.

Thank you. If you don't mind, I have a related question.

A corporation is on fiscal year which ended on 9/30/2007. So it's 2007 tax return is due on 12/15/2008. And with extension, the final deadline becomes 6/15/2009. Now, if the corporation corporation made 2007 SEP-IRA contribution for an employee on 6/14/2009, will it make the employee become an 'active participant' of an retirement plan in year 2007 (because of the SEP-IRA contribution by his employer in 2009)? The employee needs to find out because he has already made $4,000 IRA contribution for himself in 2007. So whether he is considered an 'active participant' in that year is a key to determine whether his own $4,000 is deductible or not. Thanks.

[Burke]

A corporation whose fiscal year ends on 9/30/07? Their tax return filing date would be 12/15/07, not 2008. And with timely filed extension, 6/15/08, not 2009. And, yes, if a company contribution (was) made for 2007, then it might affect the taxpayer's eligibility for an IRA, depending on his income and what kind of IRA he did. Employer contribution deadline has now passed. See limitations and phase-out rules for taxpayer.

[veritas]

Corporate year end 9/30/07

Would be a 2006 tax return. Most likely the SEP is a calendar year end, check the adoption agreement.

If this is the case the contribuions would be based on compensation paid in 2006. Those employees who had contributions to their account would be active participans in 2006.