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u03236e
New Member

I am planning to switch from LLC to S. Corp. Can I use my current SEP account to do a contribution as an employee or do I need to open a new 401k Account?

 
2 Replies
MinhT1
Expert Alumni

I am planning to switch from LLC to S. Corp. Can I use my current SEP account to do a contribution as an employee or do I need to open a new 401k Account?

As an employee of the S-Corp, you cannot contribute to your SEP account.

 

You have to establish a 401(k) plan for the S-Corp and as an employee participant, you can contribute to the 401(k) plan.

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dmertz
Level 15

I am planning to switch from LLC to S. Corp. Can I use my current SEP account to do a contribution as an employee or do I need to open a new 401k Account?

A SEP-IRA account belongs to the individual not to the plan.  For the S corp to be able to make SEP contributions, the S corp must establish a SEP plan, but the SEP contributions can be deposited into the same SEP-IRA account as was used by the SEP plan of the other entity for its deposits.  SEP contributions can only be employer contributions (including the self-employed as their own employer), not employee contributions (except for employee salary deferrals to a SARSEP established before 1997).  To be able to make employee elective deferrals, the S corp would have to establish either a SIMPLE plan or a 401(k) plan, not a SEP plan, neither of which is permitted to make deposits to a SEP-IRA account.

 

See IRS Pub 560:  https://www.irs.gov/pub/irs-pdf/p560.pdf

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