Matching contributions for Self-employed/Partners

[Guest GeorgeK]

How is the match contribution determined for self-employed/partners participants in a 401(k) Plan? It is now permitted, but is it possible in a plan that provides for (1) elective deferrals, (2) a match equal to 50% of the elective deferral up to a maximum of 4% of compensation (earnings) and (3) a discretionary profit sharing contribution?

[This message has been edited by GeorgeK (edited 03-17-99).]

[Dan]

Self employed compensation (SE Comp) is net of contributions, so calculating employer contributions for a self employed is complicated, but certainly possible.

You must set up a calculation where SE comp is reduced by SE's deferral amount, company match amount and company profit sharing. After all of these factors are included, the result should allow you to verify deferral percentage and match percentage for the SEs. Since PS is allocated on a compensation basis, the PS allocation is inter-related to matching contribution.

Hope this helps.

[This message has been edited by Dan (edited 03-17-99).]

[Guest GeorgeK]

Dan, Thanks for the suggestion. That is just what the plan administrator was doing, but wants to know if there is a formula for calculating the net earned income for partners taking into account the elective deferrals, match, profit sharing contribution and half the self-employment tax. The IRS guidelines have a formula for determining the contribution limit and allocation of a profit sharing contribution, but it is not yet updated to include a match. Does anyone have such a formula? Is anyone providing a match to partners who have confronted this issue?