Can you use a sep-ira for S corporation. Is there any disadvantages in doing so? Accountant said it had to be a profit sharing plan but from my understanding that is not correct.
Hello, Gary, and thanks for your question.
The short answer to your question is yes, you can use a SEP IRA for a subchapter S corporation. However, it’s important to understand that there are special rules for a SEP that may make it unappealing in your case. For example, if you use a SEP and have employees, you are required to make contributions for all of your employees proportional to contributions you make for your own account (based on relative annual compensation). This may have been what your accountant meant when he said that “it had to be a profit-sharing plan.”
Even if you don’t have employees, you may be limited in how you use a SEP because of your annual income or the company’s income. However, your accountant can probably spell out these restrictions for you if you still think a SEP is how you want to go.
Hope this helps,