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I am a physician and work through my S Corp business. I am…

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I am a physician and...
I am a physician and work through my S Corp business. I am opening up an individual 401K with Vanguard since myself and my wife are the only employees. Can I also open a SEP IRA at the same time? Can the business make contributions to both retirement accounts at the same time? If so, are these employer contributions tax exempt for the business owmer and employee spouse?
Submitted: 8 months ago.Category: Tax
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9/23/2017
Tax Professional: Tax.appeal.168, Tax Accountant replied 8 months ago
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
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Experience: 3+ decades of varied tax industry exp. Tax Biz owner
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Hello. Thank you for choosing this Q&A service for assistance. My name is Angela. I will be assisting you.

Q1: Can I also open a SEP IRA at the same time?

A1: Based on the following information, the answer is no. Contributions to a retirement plan can only be made from compensation, which, in the case of a self-employed individual, is earned income. Distributions you receive as a shareholder of an S corporation do not constitute earned income for retirement plan purposes (see IRC Sections 401(c)(1) and 1402(a)(2)).SEE BELOW:

Contributions to a Self-Employed PlanYou can’t make contributions to a self-employed retirement plan from your S corporation distributions. Although, as an S corporation shareholder, you receive distributions similar to distributions that a partner receives from a partnership, your shareholder distributions aren’t earned income for retirement plan purposes. Therefore, you also can’t establish a self-employed retirement plan for yourself solely based on being an S corporation shareholder.

REFERENCE SOURCE:

https://www.irs.gov/retirement-plans/retirement-plan-faqs-regarding-contributions-s-corporation

---------------------------

Q2: Can the business make contributions to both retirement accounts at the same time?

A2: As you are unable to open a SEP, this question is non-applicable.

-----------------------------------

Q3: If so, are these employer contributions tax exempt for the business owmer and employee spouse?

A3: This question is non applicable based on the answer to Q1.

If the above information clarifies matters for you, I ask that you be so kind as to scroll to the top of the page and select 3 or more stars to positively rate my response so that I can receive credit for assisting you. A 5 star rating is most appreciated. Thank you in advance.

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