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Post death contribution?


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Guest Whatup

Schedule C income. Sole prop passes away in December. Can his spouse make a SEP contribution for 2005.

I think yes.

Thank you

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Please clarify your question: is spouse going to contribute $ to deceased's SEP for 20% of deceased's net earnings from SE by 4/15 or is spouse going to claim deduction on joint return for contributon made by deceased to SEP before death or is deceased estate going to claim deduction for contribution to SEP?

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Guest Whatup
Please clarify your question: is spouse going to contribute $ to deceased's SEP for 20% of deceased's net earnings from SE by 4/15 or is spouse going to claim deduction on joint return for contributon made by deceased to SEP before death or is deceased estate going to claim deduction for contribution to SEP?

Spouse intends to contribute to husbands SEP by 4/15.

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I dont see how spouse can contribute to H's SEP after his death because contribution would be made on surviving spouse's separate return for remainder of 2005 after death of employee as a deduction of her income. I dont think contribution could be made on joint return for Spouse and deceased for portion of 2005 that ends on date of death since it was not made to SEP prior to H's death. Spouse should be able to take deduction for contribuion to her IRA for 2005on joint return if AGI did not exceed 150k. Need to see tax advisor to determine if any deduction is permitted.

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Guest Whatup

Thank you. I went through the code/regs and found no death exclusion. I relate the situation to the employer making a post death contribution to an employee that is deceased. I don't see anything in the code to say that he has to be alive at the date of contribution. This is a contribution made on his income from his self employment, the contribution is to be made by April 15th for his tax year.

I don't see any inference in the code that suggests an employee can receive an employer contribution after death, but a self employed person can not.

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I think a contribution is permitted...more on the basis of "why not" than anything else. Suppose there were employees in the plan, and he made contributions for them during the year (pick a number, say 5% was something he'd always done) but he was waiting until after the end of the year to determine his earned income and make the contribution. I see no reason why that contribution can't be made; if not, someone would have to somehow take the money out of the other accounts since you have to have a uniform allocation.

Ed Snyder

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Bird: you have a citation for your "why not" theory since under the IRC an individual's taxation for a tax year ends at death because indidivuals are cash basis taxpayers. The deceased's estate becomes the taxable entity after death for all liabilities of the deceased. There is a difference between contributing for employees and making contributions on the individual's own tax return after death.

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No, the "why not" theory is based on the fact that there is no cite preventing it. Just because an individual's "taxation for a tax year ends at death" as you put it, doesn't mean that a contribution can't be made. Plan contributions for cash basis taxpayers, of course, can be accrued.

Change the facts slightly: Make it a money purchase plan, with contributions required if a participant dies during the year. Your reasoning would say that this owner doesn't get a contribution, and that's just wrong.

I don't know where the deduction is taken - on the decedent's 1040, or the estate tax return. I'd guess the 1040, since (I think) that's where the business income would be reported.

Ed Snyder

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