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Can a S Corporation Establish a SEP?


Guest mbernier
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Guest mbernier

Earlier this year, I established a subchapter S corporation. I am the only employee. My accountant tells me that S corporations are not eligible to establish SEP retirement plans. Nothing that I've read in Publication 560 leads me to believe that my corporation cannot set up a SEP. As a matter of fact, on page 6 of the publication, under the heading "Where to Deduct Contributions", the pub states that contributions can be listed on form 1120S - the form reserved for S corporations.

Bottom line - can an S corporation with 1 employee (me) establish a SEP?

Thanks,

Mike Bernier

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Guest Paul Leslie

Mike

I would aggree with you an S-Corp can establish a SEP plan. My research on this has found that sole propreitor, partnership, or S-corporation can establish a plan.

Word of caution-- The IRS gives you form to fill out 5305-SEP which is the model plan. There are some restrictions to using the model plan, so you want to make sure you don't fall into any of those situations. Rev. Proc 87-50 sets forth who can use a model SEP. If you not use the model SEP not all is lost you will just use a protype SEP.

I advise work with a pension person that know SEPs.

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Absolutely. The S-Corp can use a model or prototype SEP. However, only wages reported on Form W-2 can be used. Dividends, if any, reported on Schedule K, are not treated as compensation.

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