Solo 401(k) for one partner

Submitted by MARK CLELAND on Fri, 2019-05-03 19:24

There are two equal partners in a partnership. One wants to contribute to a retirement plan and the other has no interest in doing so now.. Can the partnership set up a plan and only one partner contribute and take a deduction? Assuming the partnership makes the contribution from partnership funds , there should be some kind of compensating payment made to the non-participating partner. Can this type of arrangement be done or is there a better way to accomplish the same thing?



Submitted by William Tuttle on Fri, 2019-05-03 21:23

  • First, are there any employees other than their partners and optionally their spouses. If not, the partnership can adopt a one-participant 401k plan.
  • The partners could then independently make employee elective contributions. If the plan allows, for 2019 they could make both traditional deferrals and/or designated Roth contributions up to a combined total of $19K. If >= age 50 they could make up to $6K in additional catch-up contributions.
  • Any non-elective employer contributions would have to be the same percentage of compensation for both partners.
  • Any contributions would have to be made by the partnership, reported on the Form 1065 K-1, which would reduce the partner’s share of ordinary income. 

Submitted by MARK CLELAND on Tue, 2019-05-07 18:35

So, to be clear, since one partner does not wish to make retirement contributions no non-elective contributions may be made; only elective contibutons up to $19K for 2019 for the benefit of the one partner only.  Does the partnership make the contibutions?  The plan needs to be written carefully as the non-electing partner may change his mind in a future year.  

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