Separate one-participant 401(k) plan for each partner?

The rules governing 401k's include tax laws & pension law. There are requirements regarding who has to be covered in a retirement plan. Depending on the type of plan and the form of business entity (corp, partnership, proprietorship etc) different rules may apply. Guessing that you are referring to a 2 person partnership scenario, I'd guess that each one could be able to set up his/her own plan. ___________________________________

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Mark,

I will first admit my lack of official expertise in this matter. That said, my simple answer is no. It is my understanding that a 401k cannot be setup to exclude eligible individuals without violating non-discrimination tests. Therefore, a business with eligible employees cannot prevent them from participating in the company plan. Of course, by including profit sharing trusts, social security integration (permitted disparity), etc, you can definitely make the plan favor the owner. For owner-only businesses a solo 401k (a.k.a i401k, soloK, individual 401k) is an option. They are self-directed plans eligible to businesses that have only owners (and their spouses) but no other "eligible" employees. They are not subject to nondescrimination or top- heavy testing if all employees are 5% or greater shareholders and/or "highly compensated". However, you are still not allowed to prevent the other owners from participating.

Thanks for the responses. A few brief comments:

Benjamin - yes, right now I'm looking at a two person partnership (actually an LLC, but for most purposes, that's the same as a partnership). No reason why it couldn't expand a little, though. One of the issues I see is with sponsorship - the employer, not the employee, must sponsor a

401(k) plan. With a partnership, that would seem to be the partnership, and not each individual. So this may be doable, but tricky. Kastnna - there are at least some situations where a company can have different 401(k) plans with different sets of eligible participants (e.g. when one company acquires another, it may inherit a separate 401(k) plan). That doesn't prove that one can have multiple plans in my situation, but it does show that multiple plans are not prohibited per se. Normally, antidiscrimination testing is a moot point in a partnership, because the partners are all HCEs (as 5% owners). What makes this situation so interesting is that that isn't the case here. If this were strictly hypothetical, it would make for some interesting debates. Again, thanks for the thoughts and information.

Mark Freeland snipped-for-privacy@sbcglobal.net