Opus 17's example for a SEP IRA is incorrect. First, any employer plan with respect to the partnership must be established under the partnership. In the case of a SEP-IRA, contributions must be made for both partners using the same base percentage of compensation. Second, because the deduction for SEP contributions would be taken on the partner's individual tax return(s), the contribution is limited to 20% of net earnings. Net earnings are the individual's net profit minus the deductible portion of self-employment taxes.
So if each partner has net profit of $5,000, each individual's net earnings would be $4,646 (assuming that the Social Security wage limit is not maxed out with due to also having another employer), resulting in a maximum permissible SEP contribution for each partner of $929. The amount contributed on behalf of each partner must be the same, either by each partner making the SEP contribution to their separate SEP-IRAs under the partnership's plan or the partnership making those contributions under the plan.
The SEP-IRA contribution limit is separate from the IRA contribution limit, but the total of the individual's deductible portion of self-employment taxes, a self-employed retirement deduction and an IRA contribution is not permitted to exceed net profit from self-employment. Note that the Schedule K-1 from the partnership will show in box 14 with code A the individual's net profit from self-employment.
