Safe Harbor Calculation on K-1 earnings

[Deaconmomma]

Hope someone can help me with this. I have a client with 4 partners with K-1 earnings. This year they reported "negative" earnings on 3 of the partners and positive on one. The one with positive earnings terminated from the company mid-year.

This is a Safe Harbor Plan with a 3% non-elective. Do I calculate the total earnings using the net of the 4 partners and give each of them a SH contribution based on that net number.

The three remaining partners reported -42,525 and the terminated partner reported a positive 60,300.

I looked at the document and it doesn't say anything regarding this. Can someone please let me know your thoughts.

[Bird]

I say their contributions are based on their individual earnings, so 3 get nothing and the terminated one gets something. Of course that should come out of his own pocket which makes things interesting when he is terminated.

[ETA Consulting LLC]

No. Each owner will take a bigger loss for their "respective portion" of the contribution costs to employees. While the loss will send the 3 parts further below zero, their 415 limit will continue to be zero.

Everything should be business as usual with respect to the way it's calculated.

Good Luck!

[Deaconmomma]

Sorry I still do not understand. So currently, the three have a negative 42,525 totaling 127,575. If I subtract the 60,300 positive number, I get negative 67,275. So no one gets a Safe Harbor contribution.

Sorry to be so "dense".

[Belgarath]

You need to ignore the 3 people with losses, and don't try to "net" the negatives and the one positive. The one with the positive income will get the safe harbor contribution. The three with negative income will not.

You could have three partners with 20 million in losses each, and one with a positive of $1,000, and the one with the positive $1,000 would be entitled to the safe harbor contribution.

[BG5150]

Be sure to apportion the staff's contribution to all the partners, not just the one with positive income.

That is, if it's a 25% per man split, and the staff contribution is $10,000, the partner in the black only absorbs $2,500 of it. The other three will all have losses that are $2,500 greater each.

(I try to draft my document to exclude all HCEs from the SH. The company can make it up by making a profit sharing instead. Well, for all my New Comp plans, anyway.)