Partnership 401(k)

[jkharvey]

I've read the previous posts on this issue, but I still need some clarification and/or guidance. How are you handling the partner's 401(k) election that must be made by 12/31 when K-1 data is not available until several weeks later? Any suggestions?

We are considering making a guess and correct after the K1 is computed. The problem w/ this is how to treat the correction.

[rcline46]

The partners election is really very simple. "I will defer the larger of 15% of pay or $10,500." No later corrections needed. By 12/31 adjust the % or $ level as necessary.

[jkharvey]

Thanks for your response, but I have another question. What exactly do you mean by adjust the % or $ by 12/31? Is that 12/31 of the year for which the deferral is made? If so, how do you do this without K1 #?

[rcline46]

Before 12/31 of the tax year (12/31/2000 for K-1 for 2000) choose a % of pay limited by the $ amount. For example choose 10% of pay limited to $6000. Its just too bad they do not know final K-1, but they should have a good idea. If K-1 comes in at $40,000 then contribution is $4,000. By law the final K-1 income is as of 12/31 even if not known until August of the next year. That is why SDA must be in place by 12/31. None of the partnerships I service have a problem with this.