LLC-sponsored 401(k) plan

[lexi]

Members are participating in an LLC-sponsored 401(k) plan. what are the members contributions if there are no income allocations? IRC Section 401©(2)(A) defines "earnings" as "net earnings from employment." If no income allocations is there no contribution for that year?

Any help would be appreciated.

[Jim Chad]

A question first: Is this LLC taxed as a Partnership, C-corp or Sub S?

[Bird]

I'm guessing that by "income allocations" you mean profits, which implies that it's taxed as a partnership, which means the answer is no contributions are allowed.

[lexi]

Yes, it is taxed as a partnership.

So if you can't make contributions on anything other than income allocations, what do you do if the members have been making contributions despite that limitation? Do you just take out the money and return it to the members? If yes, does any of that amount need to be taxed?

[austin3515]

First of all, do they have guaranteed payments? It's not only profit allocations, but rather the sum of profit allocations PLUS guaranteed payments.

If disallowed deposits have been made they must be returned (adjusted for earnings).

[lexi]

Austin:

Thanks for your help. These people are working for the company, so they are receiving only income allocations.