SEP IRA – Net SE Loss on Personal Return – Potentially Excess Contribution?

Anyone have any insight to the following situation please:

In 2021 for tax year 2020, the Owner contributed to a SEP for himself and employee of Company A (in this case- Management Co to Hedge Fund). Company A is a partnership which Owner generated SE income from and reported on his 1040.

Turns out, Owner had a separate net SE loss reported to him through his GP vehicle (“Company B” which is a single member LLC that constitutes his GP interest (a partner Interest) in Hedge Fund) which reduced his total SE (Company A + “Company B”) income to a Loss on his 1040.

He now has a net loss reported on his 1040.

It appears his own SEP contribution is not deductible b/c he has no income on his 1040.

How should this SEP contribution for himself be treated? Is the SEP contribution for himself truly not deductible?

Option 1 – Can the Owner’s SEP contribution be looked it on a stand alone basis in relation to the SE income generated at Company A only since (based on my understanding) the GP LLC wouldn’t even be able to set up a SEP Plan anyway b/c it’s a direct partner in a partnership (the Hedge Fund). If so, force the deduction for his SEP on his 2020 form 1040 and increase the net loss on his personal return even more?

Option 2 – Can the Owner’s SEP contribution be considered similar to a non-deductible traditional IRA (a SEP IRA with basis)?

Option 3 – Treat the Owner’s SEP contribution as a “carryover of excess contribution” into tax year 2021 (and keep the employee’s as 2020).

I am reading through Publication 560 and I’m nervous it sounds like it may be subject to “Excise Tax for Nondeductible (Excess) Contributions”.

Any insight would be MOST appreciated!



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