Partner with Negative earned Income

[Lou S.]

If a partner has negative earned income for 2010. Effectively $0 compensation for plan purposes, I understand that the employer contribution is $0, the deferral limit is $0 and the 415© limit is $0.

The question I have is, if the plan allows for Roth-401(k) contribution and catch-up contributions can the partner make a $5,500 ROTH catchup contribution under 414(v) for 2010 since it is excluded from 402(g) and 415?

I did a few searches and scrolled through several pages of threads and didn't find anything directly on point so if this has been covered before I apologize.

[12AX7]

I say that you cannot defer if there is no income (plan comp). Same would be true if any other employee had no W-2 wages for the year.

[Tom Poje]

the preamble to the final 401k regs noted a sole proprietor / partner could defer...but..."self-employed individuals who take advantage of this opportunity to defer amounts during the year must make sure that the amount contributed during the year will not exceed the limits (such as the limits of section 515) that will apply to the individual, based on the individual's actual earned income for the relevant period."

so I agree with 12AX7

in particular, see 1.414(v)-1©(1) ..catch ups...when added to all other deferrals...cannot exceed the participant's 415 compensation.

[Lou S.]

I say that you cannot defer if there is no income (plan comp). Same would be true if any other employee had no W-2 wages for the year.

Unfortunately I agree with you.

I was hoping someone else had a different view and perhaps a citation or at least a tidbit from the IRS to support it. If they do I would be interested in rethinking.

edit - Thanks Tom that helps.

[12AX7]

I knew Tom would have the correct cite. I only know what you can and can't do.