SEP-IRA Contribution Allocation for Controlled Group

I have a client who owns three separate LLCs and each generates self-employment income and we are in process of establishing a SEP-IRA for each business, but I am not entirely clear how the maximum SEP-IRA contribution is determined for each entity since his total self-employment earnings exceeds $285k for 2020.

Here is the summary of SE earnings by entity, but I’m not sure if the $285k income limit and the $57k maximum SEP IRA contribution should be prorated based on each entity’s proportionate share of the Net SE Earnings or if this should be determined differently.

Entity A $200,000 of SE Earnings & Net of 50% SE Tax = $192,613
Entity B $100,000 of SE Earnings & Net of 50% SE Tax = $96,307
Entity C $50,000 of SE Earnings & Net of 50% SE Tax = $48,153
Total $350,000 of SE Earnings & Net of 50% SE Tax = $337,073

If the $285k SEP-IRA income limit is prorated based on each entity’s share of the total net SE Earnings, then the SEP contribution would be determined as follows:

Entity A Proportionate Share of SEP-IRA Earnings = 162,857 x 20% = 32,571 SEP contribution
Entity B Proportionate Share of SEP-IRA Earnings = 81,429 x 20% = $16,286 SEP contribution
Entity C Proportionate Share of SEP-IRA Earnings = 40,714 x 20% = $8,143 SEP contribution
Total SEP-IRA Earnings = 285,000 x 20% = $57,000 Total SEP contribution

Is this summary correct or should the allowable SEP contribution be allocated to each entity differently? Thanks!



As a follow-up to my post yesterday, if the formatting of this table makes it challenging to review, I can send an excel summary instead if you could provide your email address. Thanks in advance for this consideration and any feedback that can be provided.



The reason you probably have not received a response. I am not aware of any tax code, IRS regulation, guidance or publication that specifically addresses these fact and circumstances.
This is not unusual. There are many times such this when only the limit is specified. Not the implementation details.
I would think the easiest solution is to calculate the same contribution rate for all businesses that reflects the annual addition limit.
You didn’t indicate if you have any eligible employees. Generally, all eligible employees of all businesses must receive the exact same contribution rate.



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