Compensation of self-employed individual versus owner-employeeer-employee

[IHC]

Code Section 401(d) provides that contributions on behalf of an owner-employee (someone who owns 10% or more of a business) must be made with respect to his/her earned income from the employer that sponsors the plan.  Do contributions on behalf of a self-employed individual who is not an owner employee (i.e., who owns less than 10% of the business) also have to be limited to earned income from the employer that sponsors the plan? Under Code Section 415(c)(3)(A), compensation for 415 purposes is "compensation of the participant from the employer" but under 415(c)(3)(B), compensation of a self-employed individual is determined by substituting the participant's earned income for "compensation of the participant from the employer".  415(c)(3)(B) doesn't say earned income "from the employer", and I can't find anything else suggesting earned income of a self-employed individual must be only from the employer that sponsors the plan.  Any thoughts?

[Larry Starr]

44 minutes ago, IHC said:

Code Section 401(d) provides that contributions on behalf of an owner-employee (someone who owns 10% or more of a business) must be made with respect to his/her earned income from the employer that sponsors the plan.  Do contributions on behalf of a self-employed individual who is not an owner employee (i.e., who owns less than 10% of the business) also have to be limited to earned income from the employer that sponsors the plan? Under Code Section 415(c)(3)(A), compensation for 415 purposes is "compensation of the participant from the employer" but under 415(c)(3)(B), compensation of a self-employed individual is determined by substituting the participant's earned income for "compensation of the participant from the employer".  415(c)(3)(B) doesn't say earned income "from the employer", and I can't find anything else suggesting earned income of a self-employed individual must be only from the employer that sponsors the plan.  Any thoughts?

Yes.

[IHC]

Larry, while your answer makes sense and is always what I believed to be true, what is the authority for your answer?

[Larry Starr]

An employer is not allowed to contribute to a plan for other employer's employees.  The fact that he is self-employed in more than one entity doesn't matter.  If he had a W-2 working for another company, you would not have the question, right?  No difference just because he is a partner in multiple entities.  Unless those other entities adopt the plan, the comp in those other entities does not count.  I'm sure I could find a citation if I really needed to, but finding the time in December with about 20+ plans to get established by year end is not on my plate. I might find it and if I do, I will report. Maybe someone else will find that item.  "I"m your pension advisor; trust me!" ? 

[Mike Preston]

Larry is correct but to clarify just a bit 415 comp encapsulates all earned income from any 414 aggregated companies even if some don't adopt. This is not true for 404 purposes.

[C. B. Zeller]

Is this what you're looking for? 1.401-10(b)(2) If a self-employed individual is engaged in more than one trade or business, each such trade or business shall be considered a separate employer for purposes of applying the provisions of sections 401 through 404 to such individual. Thus, if a qualified plan is established for one trade or business but not the others, the individual will be considered an employee only if he received earned income with respect to such trade or business and only the amount of such earned income derived from that trade or business shall be taken into account for purposes of the qualified plan.

[Larry Starr]

4 hours ago, C. B. Zeller said:

Is this what you're looking for? 1.401-10(b)(2) If a self-employed individual is engaged in more than one trade or business, each such trade or business shall be considered a separate employer for purposes of applying the provisions of sections 401 through 404 to such individual. Thus, if a qualified plan is established for one trade or business but not the others, the individual will be considered an employee only if he received earned income with respect to such trade or business and only the amount of such earned income derived from that trade or business shall be taken into account for purposes of the qualified plan.

Looks good to me! ?

 

[IHC]

C.B. Zeller.  Thank you!