Disregarded LLC?

[Guest bouncingsoul]

Does anyone know how a "Disregarded LLC" effects a 401(k)?...if at all? I have never heard this term until yesterday.

[Jim Chad]

I heard something like this last week from an attorney who set up a cafeteria Plan for a corporation a few years ago. Because of Michigan taxes, the attorney changed it to an LLC taxed as a corporation. He said the owners are still eligible to be in the cafeteria Plan because it is a corporation for federal tax purposes.

I wonder if it means that for 401(k) purposes, you disregard the LLC and treat the employer as a corporation.

[Kimberly S]

I have never heard of a "disregarded LLC" but I do know that an LLC can choose whether they are taxed as a corporation or a partnership. Perhaps that is why they are saying to treat it as a corporation.

[BeckyMiller]

A disregarded LLC, more properly a "disregarded entity" is a limited liability company that is wholly owned by another person or enterprise. See §301.7701-2(a). The separate nature of the entity is disregarded for all purposes of the tax code - so for 401(a) purposes, this is not an aggregated payroll, any employees of the disregarded entity are treated exactly the same as employees of owning entity.

But, this is legal fiction for the tax code only. It may still be a separate entity for other business purposes.

[austin3515]

Let me guess: that's why a one member LLC files a schedule C, and does not get a K-1?

And another piece of the puzzle falls into place...

[AndyT]

The separate nature of the entity is disregarded for all purposes of the tax code - so for 401(a) purposes, this is not an aggregated payroll, any employees of the disregarded entity are treated exactly the same as employees of owning entity.

I wonder if this holds true after 1/1/09 when the attached regs take effect that states disregarded entities must start reporting their own payroll? What do you think?

Final_Regs_for_Disregarded_Entities.pdf