Can an officer of S corp with no salary deduct a Sep IRA (based on the profits?)

[abctax55 · Accepted solution]

Nope...Retirement plan contributions are based on *earned* income (SE income or W-2 income, or alimony).

And be sure you discuss with your client the repercussions of failure to take a reasonable salary from the S-Corp (ass-u-ming this officer provided services to the Corp as opposed to being a silent owner). 

[cowboys15]

For 2019, he will be taking a salary.  So, can he contribute 25% of his salary PLUS 25% of earnings from the Corporation?  Example, salary $100,000, Profit from Corp $20,000., Sep amount $30000 ($120K x 25%)
Is this correct?  

[abctax55]

Nope.  W-2 wages only, as I said above.

[George4Tacks]

@cowboys15 - If single person S-Corp and they really want to put away a large amount, have them talk to a pension plan expert. Maybe look into a Money Purchase plan. I think you are maybe looking at some type of matching program, possibly with a 401k.
Defer to a pension planner.

[Accountant-Man]

There are no "earnings" from an S corp.; only the wages count. If he is a sole employee perhaps a Solo 401k would work better.