Ownership interst in sponsoring employer held in trust plan income?

An owner of an LLC has his interest of the company sponsoring a plan held in trust, would the owner be able to use the income earned by the interest to participate in the plan? Is this even an issue?

If I understand your question Owner A gets earned income from the XYZ LLC which sponsors a qualified Plan. Owner A has put the LLC in his trust. Can Owner A participate in the Plan based on his earned income in XYZ LLC even though the trust is the holds ownership? If that's the question the answer is absolutely yes. And for plan purposes even tough the Trust holds it, Owner A is more than likely still deemed to own it.

Okay excellent, so the Plan doesn't have to directly recognize the trust in order for the income to be included as plan income. I took a quick look in 415 to see if I could find my answer and I couldn't find it.

I think we need more details here. The entity is owned in a trust. What is the "earned income" that the person is receiving? w-2? I think that counts. If the LLC is taxed as an S corp, then the pass through on the k-1 aren't earned income for anyone at all. If its' taxed as a "partnership" (with a single owner making it a disregarded entity) then the trust is the receiver of the "compensation" but I'm not sure that counts as earned income for A.

Assume its taxed as a partnership via a 1065.

I'm assuming the partner receives a K-1 for his self employment earned income from Partnership and that it's issued to him personally on his SSN not the Trust.

If the trust holds the ownership would the K-1 be issued to the individual? Is that typical? I thought it would be issued to the entity that held the ownership.

I'd suggest talking to his accountant.

On 2/9/2021 at 3:21 PM, Lou S. said:

I'd suggest talking to his accountant.

Definitely, unless it is a grantor trust disregarded for tax purposes. Otherwise, for the reasons stated in the questions above, the question being asked does not seem to make sense.

I believe it is a grantor trust. I apologize for not providing enough information. Working with trusts outside of the plan's trust is new for me.

3 hours ago, Purplemandinga said:

I believe it is a grantor trust. I apologize for not providing enough information. Working with trusts outside of the plan's trust is new for me.

OK. So grantor trust ignored for tax purposes. The owner just wants to avoid probate on the business if he or she dies.