Who's the employer - Derrin Watson special

[Santo Gold]

The details on this are a little sparse, but any comments are appreciated:

A partnership exists but does not have a retirement plan, nor do they wish to sponsor one. However, one of the partners was interested in possibly having a SEP for herself. She receives only 1099 income from the business; She is not on payroll and apparantly for now, any money she makes is paid via 1099.

Does a loophole exist for her to use this 1099 income as a basis for establishing a plan only for herself? This sounds a little like an "as-needed" independent contractor who is paid via 1099. The big difference is that this is an owner. If she wanted to start a plan, who is the employer? If its the company,then I don't think she can without covering the others. If it is not the employer, who is and could she do a plan for herself?

Thanks

[QDROphile]

You are going to have to explain how a partner has 1099 income rather than K-1 income before the question even gets started. And the details will be critical.

[Santo Gold]

What if the partner receives both and wants to establish a SEP for herself just based on the 1099 income?

[GBurns]

What is there that allows this partner to get a 1099? I know of no way that a partner could also be an IC. Partners get a K-I and that is the end of the story.

[Flyboyjohn]

1. First fix the 1099 issue and have the partnership correctly report her self-employment income on her K-1.

2. Then have the partnership adopt a profit sharing plan that provides each participant is a separate allocation group.

3. As fate would have it the partnership only contributes for your client and the partnership agreement provides that retirement plan contributions are allocable to the partner who benefits.

4. Assume that the other partners will require your client to bear all the costs associated with the plan.

[K2retire]

1. First fix the 1099 issue and have the partnership correctly report her self-employment income on her K-1.

2. Then have the partnership adopt a profit sharing plan that provides each participant is a separate allocation group.

3. As fate would have it the partnership only contributes for your client and the partnership agreement provides that retirement plan contributions are allocable to the partner who benefits.

4. Assume that the other partners will require your client to bear all the costs associated with the plan.

5. Fail coverage because none of the staff is included in the contribution.

[mbozek]

The partner may be a partner in name only but is an independent contractor to the firm who receives a 1099 misc. Law firms designate an IC with clients as a partner to boost the attorneys profile with clients but the partner will be paid as an IC based on his/her own billings. Some law firms designate employees as partners but are paid as w-2 employees.

If the partner is an IC for tax purposes then that person can establish a solo 401k plan.

[GBurns]

While there might be law firms which plays such games, in the private sector/business world this is not usually possible, not only because of the consequences, but also because of the difficulty of hiding the name of the partner in the name of the business.

I expect that soon, a few law firms will find out what "substance over form" means.

[david rigby]

It's not exclusive to law firms. There are firms in the benefit consulting arena that use the word "partner" as a title only.