SIMPLE plan for LLC

[Guest bmurphy]

Hello,

Can somebody explain how the owner of an LLC who does not draw W-2 wages participate in a SIMPLE? Is it based on net self-employment earnings similar to what a sole prop can do. Also since there is no "salary" is there a requirement for any type of written documenation similar to a salary reduction agreement.

Thank You.

Brian

[Gary Lesser]

It is based on net earnings from self-employment (NESE) which is defined in Code Section 1402(a). See any SIMPLE document. Generally, NESE is 92.35 percent of their net profits from self-employment. Thus, the elective and the match/nonelective may not exceed an owner's NESE.

[Guest bmurphy]

Gary,

Thank you - since the LLC owner does not draw a "salary" what written documentation (if any) is required for them to make elective contributions?

Brian

[Gary Lesser]

A standard election form will do specifying a "percentage" of their compensation and/or "100% of compensation up to $____." Once the amount is determined it can be contributed. Compensation in realit meaning their "earned income."