How do I categorize SEP IRA?

tzahicotzahico Member Posts: 6

Hello,

I have a SEP IRA account with Vanguard, and I transfer $xxxx from my company's (C-Corp) funds every month to it.

Right now I am categorizing it as Owner Investment / Drawing.

Is it the right category? Should I also define anything under the Payroll section?

Thanks in advance!
Isaac

Comments

  • QaisEQaisE Member Posts: 72 admin

    @tzahico Hey there! Thank you for sharing your workflow on this. Currently, categorizing the transfer to your SEP IRA account as an Owner Investment / Drawing is a suitable work around for categorizing this transfer. In general, if you want to create a transfer transaction from one account to another, this help center link explains that process. In this case, it could also be beneficial to create an Asset account for SEP IRA account that you should be able to categorize transfers to. Otherwise, you are working through the process correctly as is - so keep it going!

  • tzahicotzahico Member Posts: 6

    Thank you!

    Just want to confirm - There's no need to specify anything on Payroll since taxes are not deducted for SEP IRA, right?

    Thanks,
    Isaac

  • MikegMikeg Member Posts: 995 ✭✭✭

    @tzahico,
    Actually SEP payments are considered pension expense for the company. They should not be classified as an owners draw.

  • tzahicotzahico Member Posts: 6

    Thank you, Mike!

  • MikegMikeg Member Posts: 995 ✭✭✭

    @tzahico,
    You are welcome. Also, SEP payments are not a payroll item, other than how the contribution is computed. Payroll taxes do not come into play with them either. They are not shown on a W-2.

  • clc7clc7 Member Posts: 4

    Since the SEP IRA is a pension expense, would the SEP IRA be an asset account on the personal side or the business side? My spouse is my only employee and they have a SEP IRA as well.

  • MikegMikeg Member Posts: 995 ✭✭✭

    @clc7,
    Personal asset. The SEP is funded by an employer but it belongs to the employee.

  • clc7clc7 Member Posts: 4

    Thank you!

  • clc7clc7 Member Posts: 4

    On Wave, is a SEP IRA contribution an Operating Expense or a Payroll Expense?

  • MikegMikeg Member Posts: 995 ✭✭✭

    @clc7,
    It would be an operating expense. I would create an account called Pension Expense. It will be presented differently on the tax return depending on the entity structure.

  • wave2022wave2022 Member Posts: 1

    @Mikeg
    Thank you. I was wondering why I would put it as an equity draw by owner, because then, that would be income for owner, and that would be taxable. However, the entire purpose of having a SEP IRA would be to put that as a tax deductible expense no?

  • MikegMikeg Member Posts: 995 ✭✭✭

    @wave2022,
    Depends on the structure of the entity. For sole prop and single member LLC a SEP is not a deduction presented on Sch C. Goes to schedule 1 1040. In Wave, you can categorize either way depending on your preference. Meaning Pension expense or Owner Draw. BTW Owner draw for a sole prop is not income.

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