Canadian citizen wishes to participate in 401(k)

[Purplemandinga]

A Canadian citizen has a 100% ownership interest in a C-Corp which has a 25% ownership in an LLC (taxed as a partnership). The Canadian citizen does not receive a W-2 from the C-corp for wages performed. The C-Corp and the LLC would most likely be an affiliated service group. Could this Canadian citizen participate in the 401(k) plan offered to employees of the LLC?

My thinking is no because Canadian citizen would have no wages to defer. If they somehow received a W-2 from the C-Corp then they might possibly be able to participate.

Thoughts? Am I looking at this the wrong way? Would the C-Corp be disregarded and I would calculate earned income from the LLC earnings to determine eligible compensation?

[Lou S.]

If the LLC & Corp are an ASG, and the LLC is an adopter of the plan, and the Canadian citizen has US self-employment income from the LLC, then he could contribute to the plan based on his self-employment earned income.

 

[Purplemandinga]

Thanks Lou S.

I'm following but I'm struggling with one part.

The owner isn't the direct recipient of any earnings because the C-Corp didn't pay any wages. Why do the self-employment earnings paid to the C-Corp count as earned income of the participant for retirement plan purposes?

Thanks for your help!

[Lou S.]

The LLC is taxed as a partnership. Presumably he receives a Form K-1 with self-employment income from the LLC (partnership - not sure why it isn't an LLP but that's not my area of expertise).

And he is receiving a K-1 with positive self-employment income he has US earned income on which to defer. Then it becomes a question of whether or not an ASG exists. If an ASG does exist and the LLC has adopted on as an additional employer to the Plan, then contributions can be made on his behalf based on those earning and his elections.

Now if there is no ASG or the LLC has not adopted the plan, or he has no W-2 wages and no self-employment income, then I don't see how he could be covered by the plan.

 

[PensionPro]

On 9/19/2018 at 3:44 PM, Purplemandinga said:

A Canadian citizen has a 100% ownership interest in a C-Corp which has a 25% ownership in an LLC (taxed as a partnership). The Canadian citizen does not receive a W-2 from the C-corp for wages performed. The C-Corp and the LLC would most likely be an affiliated service group. Could this Canadian citizen participate in the 401(k) plan offered to employees of the LLC?

My thinking is no because Canadian citizen would have no wages to defer. If they somehow received a W-2 from the C-Corp then they might possibly be able to participate.

Thoughts? Am I looking at this the wrong way? Would the C-Corp be disregarded and I would calculate earned income from the LLC earnings to determine eligible compensation?

Is his comp considered US source income?

[Purplemandinga]

Yes, his income would be US sourced income.