LMOC Posted July 11, 2014 Posted July 11, 2014 In what instance can the owner of an LLC participate in a 401(k) Plan? LLC is a single member LLC 100% owned by the the owner. Can the owner participant in the 401(k) Plan he setup for the employees of the LLC.
BG5150 Posted July 11, 2014 Posted July 11, 2014 Of course he can. To the extent he has positive income from the LLC, he could possible defer and get match & profit sharing. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
LMOC Posted July 11, 2014 Author Posted July 11, 2014 Thank you and it doesn't matter if the owner receives a K-1, but is actively involved in the company?
BG5150 Posted July 11, 2014 Posted July 11, 2014 You use the net income from the K-1. No W2 necessary. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
LMOC Posted July 11, 2014 Author Posted July 11, 2014 Great! Thanks! I know that seems simple, but I just want to be sure. A CPA was disagreeing with it.
QDROphile Posted July 11, 2014 Posted July 11, 2014 What remedial action is going to be taken concerning the CPA?
jpod Posted July 11, 2014 Posted July 11, 2014 There shouldn't be any k-1 if he is in fact the sole owner. The LLC's income/expenses and, ultimately, his net earnings from self-employment, are reported on Schedule C to the 1040.
LMOC Posted July 11, 2014 Author Posted July 11, 2014 He is the sole owner and actively involved. However, the LLC MAY not have reported profits or self employment earnings. We are having a call later this afternoon to get all the facts straight. I definitely want to confirm all the facts before going further.
masteff Posted July 11, 2014 Posted July 11, 2014 So then you may simply have a difference in words going on between you and the CPA. You asked us if he can "participate"; that speaks to eligibility and whether he can be in the plan at all. If the CPA is referring to the owner having a lack of SE earnings, then he's more likely speaking to the ability to make contributions. You must be a participant to be able to make contributions, but not necessarily vice versa. Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra
LMOC Posted July 11, 2014 Author Posted July 11, 2014 Yes, masteff, you are correct. After review of an email I received, he has been receiving salary and should not have been of course. And the LLC has not reported profits or SE earnings. Therefore, he has contributed to the plan on salary he should not have received. If I find this is the actual case this afternoon, we will need to correct this of course. I know going forward he changes to SE earning he can contribute. I guess the correction can be receiving contributions back from the plan, taxes and such. (He has contributed ROTH only) OR correction of tax filings. ??? By the way, I LOVE THIS!!! Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra
masteff Posted July 11, 2014 Posted July 11, 2014 I guess the correction can be receiving contributions back from the plan, taxes and such. (He has contributed ROTH only) OR correction of tax filings. ??? In the back of my head, since he's self-employed, you have until you file to remove the excess contributions. But you'll want to review that. By the way, I LOVE THIS!!! Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra It's been around in different forms but Vonnegut's was the easiest to credit. A few of the longer versions get really silly with stuff like: 'Scooby-do-be-doo'-Scooby-doo Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra
Bird Posted July 11, 2014 Posted July 11, 2014 Yes, masteff, you are correct. After review of an email I received, he has been receiving salary and should not have been of course. And the LLC has not reported profits or SE earnings. Therefore, he has contributed to the plan on salary he should not have received. If I find this is the actual case this afternoon, we will need to correct this of course. I know going forward he changes to SE earning he can contribute. I guess the correction can be receiving contributions back from the plan, taxes and such. (He has contributed ROTH only) OR correction of tax filings. ??? Whoa/back up. Receiving "salary" may not be the technically correct way for an LLC owner (taxed as a partnership or sole proprietorship) to report compensation, but it is quite common - CPAs seem to like it because withholding can be done through the salary/payroll system rather than with quarterly payments. (Actually, LLCs can file as partnerships or corporations and we don't know which is elected so maybe it's not even technically wrong.) Either way, nobody (i.e. the government) cares, as long as taxes are paid. I doubt any correction is needed. Ed Snyder
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