LLC members & loans

[Guest pinsall]

Can a member of an LLC have a loan in a 401(k) plan?

Thanks

Pat Insall, CPC

[Guest Rick Butler]

It is my understanding that "LLC" does not necessarily make the employer a corporation. The employer makes the election of whether to be taxed as a partnership or a corporation independently of LLC status. If the employer elected to be taxed as a partnership than no loan for the owners.

[Guest P A Weick]

Is it that clear with a partner? I thought the exclusion from loans had to do with a 10% or greater partner.

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[Guest Rick Butler]

PA Weick is correct. You must be a 10% owner to be considered an "owner-employee" for loan purposes. Sorry, I should have been more precise.

[Guest FredReilly]

How do you determine how to treat an LLC? The mere fact that you elect to be taxed in a particular manner doesn't seem to change the entity under state law. I have checked through the CCH database and couldn't find any reference to this issue. IRC 401©(3) only references partnerships and proprietorships. For an LLP I would think that it is clear, but an LLC could have several members and not strictly fall under the proprietorship requirement.

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[Guest Mike Kimball]

I think each state's laws authorizing the formation of LLC and LLP entities also stipulates as to how they are operated , i.e. as a partnership or as a corporation. In Nevada, for example, they are treated as partnerships, so loans are treated as same as loans to partners in a partnership.

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[Guest bhoffman]

An LLP follows the same rules as a partnership. An LLC may be treated as either a partnership or a corporation (either a C corp or a Sub-S corp). An owner employee, (more than) 10% partner (LLP or LLC) or (more than) 5% S- corp shareholder (LLC), would not be able to take a plan loan.