Individual 401(k) in LLC - how to book and report on 1065?

If you can figure out how to defer compensation into a qualified plan without having paid SE tax on the entire compensation, I'm interested in how that can be made to happen.

Steve

I'm with Steve on this one!

How or why on Earth would a passive member get guaranteed payments while the managing member gets none?

Gene E. Utterback, EA, RFC, ABA

Managing partner pays SE income on its entire share of partnership profits whether he draws on capital or not. Do you know answer to my questions re 401(k)?

SNIPPED

Maybe - but I'm not sure because I don't have all of your information. And you still have not answered my question - why does the passive partner get guaranteed payments? Paying guaranteed payments may well mean that this person is NOT passive at all.

With that caveat, payments into a company sponsored plan are on behalf of the partner or member and could very well be considered additional distributions to the member, to be taken on their personal return;

Or they could be a company only paid contribution to the plan, with no impact on the member;

Or they could be treated as guaranteed payments subject to additional SE tax.

It depends on the intricacies of how the plan was set up and what all was being done and how it was being done.

Quite frankly if you're doing this return you are in over your head. Do NOT expect to get a definitive answer here. Those of us who are pros who respond here do so as a courtesy with the caveat that the information you get from any of us is worth exactly what you paid for it - NOTHING.

If you are a nontax professional I would suggest you get help from a tax pro right away. If you are a tax pro I would say that you still need help from a professional experienced with such matters, you are foolish to rely solely on what you get here from anyone - ME INCLUDED (and there is no better tax pro than me! ). Also, if you're a pro you need to be very careful here, doing work for which you do not have the requisite experience will endanger your ticket faster than just about anything else you can do.

Get professional help on this, Gene E. Utterback, EA, RFC, ABA

This may be less unusual than you believe. Typically if a limited partner is performing some non-core service (tax accounting, investment advice) for the partnership they might be paid a guaranteed payment. Obviously, it would be abusive to disguise partnership income as a guaranteed payment so as to defer it into a qualified plan, but there are many many scenarios where the guaranteed payments are legit.

I agree. I would not want to be responsible for a plan with multiple unrelated participants without having a retirement plan professional look over my work.

Beyond that, I have no additional thoughts other than to read Pub 560, and the instructions for form 1065, which seem to answer most or all of the questions posed here. Furthermore, the following message board is potentially relevant:

One additional thought I have, not applicable to the immediate situation, is that an alternative to setting up a plan at the partnership level would be for the individual partners to each set up a solo 401(k) plan. That would seem to avoid all of the sticky reporting issues, and you could possibly end up deferring more income (up to $49,000 in 2009).

Finally there is a theoretical question: does wrapping an LLC around the partnership change anything? Probably some opinions on this can be found at the benefitslink.com board.

Hope this helps.

Steve