Sean Macklin

Related question: Do he need to set up his own company, whether S corp or LLC? (This is in financial services, so C corp Personal Service Corporation is not an option). He would not go to the trouble of setting up a separate personal company unless necessary to participate in the 401(k). Or can he just participate as an individual? Based on everything I've read, it seems like he could just participate individually, but I did talk to a TPA who (although sounded very uncertain) seemed to think they needed to form their own entity. If he did set up his own LLC, would the partnership then act as adopting employer for the personal company?

Thank you all for the very, very helpful info. This particular partner is a 1% owner. His guaranteed payments will be a fixed monthly amount representing a fair and reasonable salary for his actual job responsibilities with the company. I don't know the technical definition of earned income for these purposes, and I'm guessing it's not a short answer type question, but if it is possible to make general statements about how you would generally distinguish earned income from other guaranteed payments, or can link to something that provides some color on this, I'd appreciate it. Again, thank you all.

Bill - Thanks for the reply. The plan document does currently only include employees. They would be willing to amend it. Does that solve the problem? How does it work in practice then since previously he had his contributions deducted from his check by the payroll company?

ABC LLC is a multi-member LLC taxed as a partnership. One member, John, was incorrectly classified as a W2 employee for many years, and is a participant in the company's 401(k) plan. Beginning 1/1/2021, John is receiving guaranteed payments on K-1 instead of W-2. Is John able to continue to participate in ABC's 401(k)? There has been no match or profit-sharing in the past though there may be in the future. If so, how does this happen? Does John need to set up his own corporation or LLC to receive the guaranteed payments, and to be the participant in ABC's 401(k)? If he is eligible, will he then contribute once a year to the 401(k)?