Eligible SelfEmployment Compensation for Profit Sharing Roth v Pretax

[gdlfa]

A & B are equal partners and both get a K-1s (traditionally identical)

A makes pretax contributions (which are included in box 13 (a deduction)

B makes Roth contributions which are included in Box 4 (guaranteed payment) 
thus A & B end up with different box 14 numbers and thus higher net earnings.

When allocating profit sharing, does B have higher compensation then A and thus receive a larger profit sharing allocation?

Is there a way not to reach this result?

[Lou S.]

I'm not a CPA but I thought Partner traditional 401(k) contributions got deducted on their 1040 not the K-1.

[ETA Consulting LLC]

47 minutes ago, Lou S. said:

I'm not a CPA but I thought Partner traditional 401(k) contributions got deducted on their 1040 not the K-1.

I still think that 

[Luke Bailey]

No retirement deductions are taken for partners on the 1065 or K-1's. Only by partners themselves on 1040. Also, it's all self-employment income, Roth and non-Roth, which is what the plan doc will use for non-W-2 participants.

[Larry Starr]

None of the prior responses deal with your issue. So, here is the info you need.

Net self employment  income (which is used for purposes of  calculating compensation for plan purposes) is reduced by contributions to the plan BY THE EMPLOYER that are non-taxable to the self employed individual.  So, for example, 401(k) deferrals do not reduce the compensation for plan purposes, but the profit sharing employer contributions (including safe harbor 401(k) contributions, if applicable) DO reduce the compensation for plan purposes.  It is confusing because both the 401(k) deductible deferral and the company contribution show up on the individual's 1040 on the same line,  but it is the Schedule SE (with some minor modifications that we don't need to go into here) that will basically give you the compensation for plan purposes.  And neither deductible nor Roth 401(k) deferrals reduce your net income on Schedule SE.  Your two individuals should have the same income for plan purposes.

Now, the fact that this question is even being asked makes me think that there is not a competent retirement firm involved in the issue.  You title this "profit sharing Roth" but there is no "profit sharing roth". It is 401(k) Roth; profit sharing is completely different.  When dealing with self-employed individuals, the determination of net self employment income for plan purposes is potentially a very complex issue.  It includes issues of Section 179 deductions claimed (which could be different for the two partners) and even some oil and gas depletion deductions claimed (which, while I have included those in my outlines on this subject, I have never had a client who had any) and even unreimbursed partnership expenses which again can be different for each partner (like, possibly, different amounts of continuing medical education expenses for two doctor partners).

This is not a calculation to be done by the "cpa"; it is to be done by competent pension people who completely understand what is a complex tax calculation in many instances.

[gdlfa]

thanks to all! This was extremely helpful. 

Apologies for the odd title, the driver of the issue was the desire to perform an equal profit sharing allocation, obviously there is no Roth Profit sharing.