Small Real Estate firm to start 401-k

[KevinMc]

A small firm wants to start a 401-k plan with salary deferrals but all are 1099 employees.  Are they able to do salary deferrals?  Would they have to "take" a salary to make a deferral?  Thanks

[Bird]

18 minutes ago, KevinMc said:

1099 employees

Non sequitor.  If they are paid on a 1099 they are not employees (unless they are misclassified).  If you are talking about real estate brokers, I think it is pretty well established that they are 1099 independent contractors.  Not advisable to let the tail wag the dog and try to change that classification to employees just for the sake of setting up a 401(k).  They can all establish SEPs or...whatever.

[RatherBeGolfing]

Agree with @Bird

[Jim Chad]

Aren't real estate brokers an odd group?  Isn't there something unusual they can do that no one else can do?  I think they are statutory non employees?

Derrin Watson refers to code section 3508

[Jim Chad]

This is an IRS code making them non employees for payroll. But the DOL does not have such a regulation.  So for pension purposes, they might be employees.

[Luke Bailey]

See IRC sec. 3508(b)(3). Treat them as self-employed's, who of course can have 401(k), although the rules apply a little differently, but you'd probably end up with a multiple employer plan. I would definitely check out whatever Derrin Watson's "Who's the Employer" says about how to handle.