Annual Addition Limits for An Individual Formerly a Partner in a Law F

[Guest McElroy]

Individual A was formerly a partner in a law firm. During 2000, Individual A contributed $10,000 to the law firm's 401(k) plan. The law firm dissolved and Individual A provides services to a new employer as an independent contractor. As all of Individual A's remuneration is treated as earned income, what is Individual A's annual addition limit under fis current employer's plan. Is his $30,000 limit reduced or not? Any thoughts? Thanks. Ed

[pjkoehler]

You say that Individual A is an independent contractor. He is, therefore, ineligible to participate in the qualified plans of the firm that has engaged him to perform services. Individual A, assuming he is a bona fide independent contractor, operates as a sole proprietorship. He is eligible to establish his own plan, as a self-employed person, which will function as a deferred compensation plan, i.e. employer contributions are reduce his earned income from self employment, with respect to which his 2000 annual additions would not be aggregated with the 2000 annual additions under the plan of his former employer (barring any affiliated service group relationship in 2000). If the former law firm and the sole proprietorship form an ASG for 2000, then the plans would be aggregated for, among other things, Code Sec. 415 purposes.