Partnership allocation of safe harbor contribution

[Guest KMP]

I'm working on a new 401(k) plan for a partnership with four partners, and I'm calculating the safe harbor contribution. The CPA has allocated the non-partners' safe harbor contributions in accordance with the partnership agreement. However, I was told that the safe harbor contribution for the partners is not a partnership expense and is not allocated according to the agreement. It is allocated to the partner who is receiving the contribution.

Is this correct?

[jaemmons]

Yes. All contributions made to the plan on behalf of each partner are individual deductions for tax purposes, which included "deferrals", match, and non-elective contributions, and as such are treated as having been made by the partner personally. This is why they are taken as 1040 deductions and not 1065 adjustments. All other plan costs (non-partner) are allocated according to their partnership agreement, irrespective of their individual partnership interest.

[Mary Kay Foss]

I don't agree. FSA 1999-1019 says that a special allocation of Keogh plan deductions is not correct. The partnership agreement made no provision for allocations that differed from the partners' profits percentages in that situation.

If the partnership actually makes the contributions, each partner is only responsible for his or her pro rata share.