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1099 Income


Egold

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The owner of  the LLC sold his practice May, 2022,  (plans were terminated, all participants paid, final 5500SF filed,

The former owner is now receiving 1099 income from the new owners .

Can the former owner start a new profit sharing plan in 2022 using

his 1099 income for contribution.

 

 

 

 

 

 

 

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So the owner sold off the business but is now a self-employed independent contractor providing services to the business he sold, correct?

Yes, this person can do qualified plan(s) based on this income (assuming it is earned income from self employment).

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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You may want to dig into the 415 aggregation rules, since it appears owned >50% of each (LLC and sole prop) during the year and maybe a combined 415 limit applies. I don't know if you need to look at the year as a whole or aggregation doesn't apply because the >50% ownership in the entities didn't overlap.

Maybe making any new solo plan effective say 6/1 makes that moot? But then a short PY means prorated comp and 415 dollar limits which may or may not impact this person.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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You may also want to inquire about the independence and type of services performed.  Especially on the look out for any managerial functions. A management-type affiliated service group exists when:  (i) An organization performs management functions, and  (ii) The management organization's principal business is performing management functions on a regular and continuing basis for a recipient organization.   There does not need to be any common ownership between the management organization and the organization for which it provides service. Any person related to the organization performing the management function is also to be included in the group that is to be treated as a single employer. [IRC Section 414(m)(5)]

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