Self Employed

[Randy Watson]

I've read through the Code, Regs etc.. and I believe that a "statutory employee" could also be considered "self employed" and thus sponsor their own plan (other than certain life insurance salesmen). Could someone please confirm whether I am correct and let me know whether there are any special issues related to this odd situation that I should know about? Thanks.

[WDIK]

Are you referring to what used to be called Keogh plans?

[Randy Watson]

No, 401(k) plans. What did I write that made you think I was referring to Keogh plans?

[WDIK]

Keogh plan was the term coined to refer to plans adopted by self-employed individuals.

Sole proprietors can adopt 401(k) plans.

(I think I understand where you are going now. Can an employee set up his or her own plan? I don't think so, unless they can sponsor the plan as a sole proprietor.)

[Randy Watson]

Okay. I guess that is my question then....whether someone who is treated as a statutory employee can still be considered a sole proprietor as to the remuneration they receive as a statutory employee and thus sponsor their own 401(k).

Based on 3121(d)(3) of the Code, "statutory employees" are only "employees" for purposes of FICA and FUTA withholding (no obligation for the employer to withhold for income tax). They are essentially independent contractors who fall within certain parameters that require the service recipient to withhold FICA and FUTA.

If they can also fit into the definition of "self employed" (i.e., have earned income) then I believe they can establish their own plan. What do you think?

[saabraa]

I agree that statutory employees, other than certain life insuranse salespersons, can sponsor their own plan. I don't immediately know of any glitches.

[Nate X]

IRS Publication 334 refers to tax reporting for Statutory Employees and Sole Proprietors. In the publication, it says: "You can set up and maintain the following small business retirement plans....Qualified Plans." There's NO exception in the publication that states that this does NOT apply to Statutory Employees.

[Belgarath]

Also see 401©(2)(A)(iii) which supports your position as well.