Multiple business

[Guest David Winkler]

Section 401(d) states the contributions on behalf of any owner-employee may be made only with respect to the earned income of such owner-employee which is derived from the trade or business with respect to which such plan is established. Therefore, if an individual is a partner in a partnership, and also has a Schedule C business, the contributions for his Schedule C business cannot include the self-employment income of the partnership if the partnership has not established a plan. Question: Can an individual in such situation, make a full $49,000 contribution for both the Schedule C business, and his allocable share of partnership income since each is considered a separate employer? The businesses are not part of a controlled group or affiliated service group. The individual has self-employment income from each business in excess of $245,000.

[Gary Lesser]

The partnership must have a plan to consider its partner's EI.

The other entity could have a plan based on EI from that business only. The EI from the partnership needs to be considered when calculating the 1/2 of self-emplyment tax deduction amount (generally allocated pro-rate between the entities).

Also, for 2010 only, any deductible health insurance premiums, must also be considered by the plan, but not in calculating the 1/2 of the self-employment tax deduction.

If the resulting amount will be less than $245,000 you might want to consider using Software designed for this purpose.

[Gary Lesser]

David,

And "yes." Each of these unrelated entities can have a plan. Since there is no aggregation in regard to the $49,000 limt; the partner could get an allocation of $49,000 from each plan. Thus, the unrelated employers are not treated as a single employer.

FWIW--

1) The more than 50% control limit of 415(h) applies for purposes of the 415 limits.

2) If there were a SARSEP and a 401(k), the elective limits applies to each plan and to the individual.

3) The self-emplyment tax deduction must be allocated between the two employers in claculating EI. If the partner is well over the $245K limit, this is not an issue.

Hope this helps.