S-Corp SEP accounts for two shareholders

[Guest JPrusinows]

Can each shareholder establish/participate in a SEP IRA? Dividends are paid to each. Can one shareholder participate if the other does not? If both are covered by a 401K with another employer (max contribution being made)?

Thank You

[Gary Lesser]

The deductible SEP contributions will reduce the 401(k) deduction limit by the same amount if the employers are related/controlled/affilliated. Otherwise, the full contribution of $41,000 could be made into each plan (plus catch-up contributions in the 401(k) if eligible. HOWEVER--

The business must establish the SEP and cover all eligible employees; none may opt out. Only the W-2 income of a Sub-S shareholder can be used as plan compensation. The dividend income is probably miscatagorized (if as result of services to corp) and may be subject to FICA and FUTA (i.e., not SECA).