1099 income

Someone in my office got a call about maximum deductions for a 401(k) Plan.   It's 2 participants, husband and wife, both doctors.   They only receive 1099 income.    I'm not sure they can have a 401(k) plan with only 1099 income to begin with.      What type of plan could they have, if any.    What limits would it be subject to?     Could they have a DB plan with 1099 income?    

thanks for any help or point me in the right direction.      

If this is a self-employment income subject to FICA tax, they may have all kind of retirement plans. I suggest starting here: https://www.irs.gov/pub/irs-pdf/p560.pdf

6 hours ago, Chippy said:

Someone in my office got a call about maximum deductions for a 401(k) Plan.   It's 2 participants, husband and wife, both doctors.   They only receive 1099 income.    I'm not sure they can have a 401(k) plan with only 1099 income to begin with.      What type of plan could they have, if any.    What limits would it be subject to?     Could they have a DB plan with 1099 income?    

thanks for any help or point me in the right direction.      

If they have 1099 income for providing their services, then they are self-employed individuals and are absolutely allowed to set up the same retirement plans as anyone else who has a corporation.  You could even set up one plan that covered both sole proprietorships.  Yes, they can have a DB plan.  The limits would be the same as any other plan.

Hope this  makes it clear.

Larry, thank you.      Since they are self employed, do they file a Schedule C?    

1 hour ago, Chippy said:

Larry, thank you.      Since they are self employed, do they file a Schedule C?    

The questions you are asking show little knowledge of the important things we deal with and the tax system generally.  What is your position?  These are fundamental questions; depending on your role in this, it sounds like you need professional assistance.  I take it you are neither an accounting firm nor a retirement admin firm.  Fill us in on where this is coming from and we might be able to suggest your next steps to gain understanding of what is needed.

My lack of knowledge come with 1099 income.   I have years of experience working with retirement plans, I have partnership plans, sole proprietors and corporations.   My plans give me the k-1 income and the Schedule C.   I've just never had someone tell me they only receive 1099 income.    and this is 2nd hand information I've been receiving.    Trying to help someone else out.      

I hear what Chippy is saying.  1099s are of no direct relevance in determining maximum deductions.  It is the Schedule C and, to a certain extent, the Schedule SE.  Sure, the top line on those Schedules will include "1099 income", but (a) they may have other income legitimately reported on the Schedule C/SE which was not reported by the payor on a 1099, and (b) all of the business deductions are reflected on the Schedule C.   

5 hours ago, Chippy said:

My lack of knowledge come with 1099 income.   I have years of experience working with retirement plans, I have partnership plans, sole proprietors and corporations.   My plans give me the k-1 income and the Schedule C.   I've just never had someone tell me they only receive 1099 income.    and this is 2nd hand information I've been receiving.    Trying to help someone else out.      

The question that led me astray was the one that said "Since they are self employed, do they file a Schedule C?" because by definition, self-employed HAVE TO FILE a schedule C.

Your confusion is in paying any attention to 1099s. Basically, you ignore them. The client/accountant has to reflect all the earned income on the Schedule C (or K-1 if it's a partnership) and that will include anything reflected in 1099s that the client may get. But it is the Schedule C that  matters; ignore 1099s.

Does that help?    

Funny thing is that I had the exact same call.  I had the advisor send me the last Schedule C's of the husband and wife.  (I would not be surprised if it was the same guy.)  I need to say I agree entirely with Mr. Starr, BUT be careful with using one plan to cover both proprietors (husband and wife), since this might require that you have the Plan operate as a multiple employer plan.  While this might not be a big deal, you do need to be aware of how the program is being used.

I agree with Larry 200%--I have my own LLC for each business and I get 1099's for the consulting business and file Schedule Cs for the 

sole proprietorship. One plan is so much easier and  it would not normally become a MEP (unless some serious mishandling) as that is way far afield from the reality.

Hope that helps.

On 12/20/2019 at 4:55 PM, Below Ground said:

Funny thing is that I had the exact same call.  I had the advisor send me the last Schedule C's of the husband and wife.  (I would not be surprised if it was the same guy.)  I need to say I agree entirely with Mr. Starr, BUT be careful with using one plan to cover both proprietors (husband and wife), since this might require that you have the Plan operate as a multiple employer plan.  While this might not be a big deal, you do need to be aware of how the program is being used.

No, this would  never be a MEP. It is a single plan of a controlled group; we would have one business as the sponsor as the other as the additional adopter.  But only one plan.

My post above was not clear because I failed to mention one factor.  My earlier comment saying a MEP could be created was because a husband and wife with unrelated firms do not aggregate the ownership of corporations for controlled group rules.  (Specifically, there are 4 conditions listed that define when spousal attribution does not apply for determination of controlled groups under Section 1563.)  Since you were talking about Schedule C and/or K-1 Income Entities, you were obviously talking about businesses that are not incorporated; making the "Section 1563 Exceptions" not applicable.  I should have been more careful and noted the distinction of firm types.  Sorry about that.