SEP IRA Contribution with a passive partner
I have a partner client (#1) in an LLC; two ptrs. The other ptr (#2) owns another practice and so is “passive” in this LLC business with Ptr 1. Ptr 2 gets a K-1…at least this yr of 2010 when we determined he really shouldn’t be paying SE tax on his share of the profit distributions because he is not active. They have about ten therapists working for them, and have always paid all the therapists as contractual, or 1099.
I know the SEP plan must be that of the partnership itself and NOT the individual partners, so I guess the real question is if the partnership has a SEP plan, who is eligible of the following:
1. Active partner (taking guaranteed payments and profit distributions; all SE income)
2. Passive partner (just taking profit distributions; no SE income)
3. Contracted therapists who receive 1099’s
Thank you!
Permalink Submitted by mk foss on Fri, 2011-02-11 21:58
In order to participate in a SEP for the partnership, individuals must have SE income from that partnership.
The active partner with SE income is the only one that qualifies is the situation that you describe.
The service providers who get Forms 1099 can establish their own SEP IRAs for their own business. Each of them is treated as an independent business person and not an employee of the partnership.
If any of them subsequently become employees or active partners, they must be covered at that time.