LLC & 401(k) if LLC opts to pay taxes as partnership

[Guest jusducki]

Our LLC clients issue W-2s to the owners who, in turn, participate in the company 401(k) plan. A new LLC client asked if the businessowners opt to be taxed as a partnership, can the owners still participate in the 401(k). Never had this situation before - can't the partners receive W-2s? If not, could the owners simply create an S Corp, as an additional employer, receive W-2 earnings and then participate? Thanks to those who make time to clear this up for me.

[WDIK]

The following threads may be of interest:

http://benefitslink.com/boards/index.php?showtopic=9579&st=0

http://benefitslink.com/boards/index.php?showtopic=28165

[Lori Friedman]

This one might be helpful, too:

http://benefitslink.com/boards/index.php?s...=0entry100942

[Guest Midas]

I have recently worked on a similar situation. Information received from the IRS confirms if an LLC is taxed as a partnership, a partner that is a self employed individual should not receive W2 earnings. The partner is permitted to participate in the plan and can defer off of draw amounts. If deferrals are made off a partner's draw during the plan year, a reconciliation will need to be done after the end of the plan year, once the earned income from the K-1 is provided, to make sure their was enough earned income to support the deferrals made during the plan year. If the partner does not defer off draw amounts and wants to defer off earned income from their k-1, the election to defer will need to be made by 12/31, while the deposit can be made up to the company's tax deadline.