401(k) from partner's income

[joano]

If a partner in an LLC has a net loss income reportable for the year, is it possible for that partner to make a 401(k) contribution on his/her own behalf?

[Blinky the 3-eyed Fish]

No. Remember that one of the components of the 415 annual addition limitation is 100% of compensation. Without any compensation, his annual additions are limited to 0.

[joano]

Thank you, Blinky.

We were asked about a scenario in which a partner wants to elect to defer from monies drawn from the LLC and make 401(k) deposits during the plan year. Would that be allowed? I assume that if so, if there is a net loss reported for the partner at the end of the year, there would be a 415 excess and the entire 401(k) amount would be refunded as 1099-R income. (This does create an adp testing issue if there are other highly paid employees who are not partners.)

Do partners and sole props. always have to wait until the end of their fiscal year to make deferral deposits?

[Guest At Peace]

This is an issue of interest to me as well.

If anyone knows the procedure when a partner has a negative income on his K-1 what do you do for plan purposes? Am assuming that his comp would be zero and he would not be able to defer or share in any contributions allocated. If he defered during the year on any draws made, am assuming that the contributions would be returned - sounds like the same thoughts by joano. Do you agree?

Thanks!