LLC Taxed as a Partnership, Owner gets a K-1

[emmetttrudy]

A business owner has a 401k Plan and a DB Plan. He receives a K-1. Would like to contribute the maximum allowable -> DB contribution + deferrals + 6% profit sharing. Is the 6% profit sharing contribution calculated based on his net earned income prior to deducting the DB contribution?

[rcline46]

It all is done a once. Hope you are billing enough for the 'fun' doing it all at once. And if you give a range for DB contributions, it gets funner! Hope he makes soooooo much he is always over $255,000!

[emmetttrudy]

What do you mean if it is all done at once?

[Bill Presson]

What do you mean if it is all done at once?

Meaning that, if the compensation starts or ends up below $255,000, the entire calculation is circular. If the DB amount changes, then the comp changes which changes the DC amount which changes the comp amount, etc, etc.

[emmetttrudy]

OK, so it sounds like the 6% PS contribution does depend on the DB contribution. So if the comp is below $255k, you use the comp minus db contribution for the calc of the 6%?

[rcline46]

No. Look at it in a simple way - set the Schedule SE. See the Social Security/Fica tax, look for 1/2 of that BIG number and subtract it. Most of that calculation is actually on the SE.

Now you have your working number, and the answer is 'simple'. DC+DB+'Benefit Comp' = Earned Income less 1/2 Self Employment (FICA) taxes. Since the right hand side is FIXED, the left side gets wiggly (that is a technical term). So you had better lock down your DB number first.