Individual SEP IRA's for for LLC Partners

[Guest smiceli]

I have asked the question several times of the IRS and retirement specialists at a large brokerage firm if individual partners can open up their own SEP. Three partners with no employees. One wants to make a contribution at the 20% level, one at 10% and one doesn't want to contribute at all. I've been told that since they have no employees and their income flows to their 1040, they could each establish their own SEP IRA and determine their own contribution percentages. However, once they get one employee then they would all have to contribute at the same percentages (abide by one plan document instead of three).

I'm very frustrated. After a few searches on this board I've seen this question asked several times and the answer has always been "no". I'm wondering, are there special circumstances, that would allow individual partners to have their own SEP IRA.

Also, does anyone know of any revenue rulings or regulations/guidance that discuss this issue in more detail.

Thanks in advance.

[QDROphile]

See 408(k)(7)

[Mike Preston]

Invite whomever you are speaking to at the IRS or at the large financial institutions to "come on down" and educate us here on BenefitsLink. We are always willing to learn. Until then, we'll just stick with the boring old Internal Revenue Code.

And until they are willing to do that, ask them whether they will put it in writing and accept liability if they are wrong.

[Gary Lesser]

Agreed.

A SEP is established by an employer. Although a sole-proprietorship may establish a SEP, a partner is not a sole-proprietor(ship). It is the employer (partnership) that must adopt the SEP plan. If the contribution is made at the highest level, then those not wanting that much cd withdraw the amounts from the IRA (without penalty if age 59-1/2). Because the employer's contribution is not subject to self-employment taxes, there may be some tax savings.

If the SEP is established by a partner (absent Schedule C or Schedule F income), their SEP compensation is zero. Controlled group and IRC 415(h) issues might also apply.

[panther]

See also 26 CFR 1.401-10(e)(1) (individual partner is not an employer who can establish a qualified plan, such as a SEP)