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CCH® PENSION — 07/1/11

Partners can't have individual SEP plans, says IRS

Partners or members of an LLC taxed as a partnership are considered employees for retirement plan purposes, and thus cannot have individual SEP plans, according to the IRS. Only an employer can maintain and contribute to a SEP plan for its employees.

The IRS notes that, in addition to the partners, the partnership's SEP plan must generally cover all employees who have:

• reached age 21,
• worked for the partnership in at least 3 of the last 5 years, and
• received at least $550 of compensation in 2011 (subject to annual cost-of-living adjustments).

The plan may use less restrictive participation requirements to cover employees.

Under the SEP plan, the partnership contributes to each eligible employee's SEP-IRA, which each employee owns and controls. The partnership deducts plan contributions for employees other than the partners as a business expense on Line 18 of Form 1065, U.S. Return of Partnership Income and reports plan contributions for partners in Box 13, using Code R, on each partner's Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Partners deduct plan contributions they make for themselves on Line 28 of their Form 1040, U.S. Individual Income Tax Return.

Source: IRS Retirement News for Employers, Spring 2011, May 17, 2011.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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