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S Corp SEP funded by C Corp ctrbs?


Guest GreenERISA
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Guest GreenERISA

C Corp is owned by 2 people. These 2 people receive W-2 wages and also 1099 wages as independent contractors.

Can they use the 1099 wages from C Corp to fund a SEP established under the S Corp (which is owned and operated by 1 of the 2 people)? Would it be permissible for just the 1 common owner to both the C & S corp?

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C Corp is owned by 2 people. These 2 people receive W-2 wages and also 1099 wages as independent contractors.

Can they use the 1099 wages from C Corp to fund a SEP established under the S Corp (which is owned and operated by 1 of the 2 people)? Would it be permissible for just the 1 common owner to both the C & S corp?

1. who would be the plan sponsor?

2. Which corp would deduct the contributions?

3. what is the source of the 1099 comp?

mjb

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Guest GreenERISA
C Corp is owned by 2 people. These 2 people receive W-2 wages and also 1099 wages as independent contractors.

Can they use the 1099 wages from C Corp to fund a SEP established under the S Corp (which is owned and operated by 1 of the 2 people)? Would it be permissible for just the 1 common owner to both the C & S corp?

1. who would be the plan sponsor? Plan Sponsor is the S-Corp.

2. Which corp would deduct the contributions? I am not entirely sure-I would think it would have to be the S-Corp, as the sponsor of the SEP.

3. what is the source of the 1099 comp? The 1099 comp is for being independent contractors to the C-Corp.

Essentially, the 1099 comp from the C-Corp are being used as seed monies to the fund the SEPs under the S-Corp.

Thanks in advance for any insight.

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Form 5305-SEP is perhaps THE easiest IRS form to complete so don't force it under the S-corp just to save effort.

Does the 1099 income actually belong to the S-corp or to the individuals?

Does the C-corp have any other employees?

Is their independent contractor status legit or would the IRS rules really deem them to be employees? It's at least a red flag to simultaneously have W-2 and 1099 income from a company (especially that they happen to own).

Edit: why aren't they simply doing the SEP under the C-corp?

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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Guest GreenERISA
Form 5305-SEP is perhaps THE easiest IRS form to complete so don't force it under the S-corp just to save effort.

I don't think they are eligible since the C-Corp maintains a 401(k) for its employees.

Does the 1099 income actually belong to the S-corp or to the individuals?

The 1099 income belongs to the individuals.

Does the C-corp have any other employees?

C-Corp does have a number of other employees, but the S-Corp is a solo practice, with the owner being 1 of the 2 persons who own the C-Corp.

Is their independent contractor status legit or would the IRS rules really deem them to be employees? It's at least a red flag to simultaneously have W-2 and 1099 income from a company (especially that they happen to own). I agree about the red flag issue. My assumption (because I did not get the story first hand) is that the W2 wages are from acting as director/president of the C-Corp and the 1099 wages are from their professional services rendered to the C-Corp as independent contractors.

Again, I really appreciate the insight.

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I don't think they are eligible since the C-Corp maintains a 401(k) for its employees.

The 1099 income belongs to the individuals.

C-Corp does have a number of other employees, but the S-Corp is a solo practice, with the owner being 1 of the 2 persons who own the C-Corp.

I agree about the red flag issue. My assumption (because I did not get the story first hand) is that the W2 wages are from acting as director/president of the C-Corp and the 1099 wages are from their professional services rendered to the C-Corp as independent contractors.

Again, I really appreciate the insight.

IRS Reg 31.3121-1(b): "Corporate officers. Generally, an officer of a corporation is an employee of the corporation. However, an officer of a corporation who as such does not perform any services or performs only minor services and who neither receives nor is entitled to receive, directly or indirectly, any remuneration is considered not to be an employee of the corporation. A director of a corporation in his capacity as such is not an employee of the corporation."

They can't just declare themselves to be independent contractors in order to circumvent the restrictions of ERISA. Until proven otherwise, they are employees and can't use any income however paid from the C-corp to fund an SEP.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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