Simple Ira for LLL (partnership) and c-corp

Submitted by Keith Kim on Thu, 2020-09-03 19:35

Hello all,
Thank you for you help in advance.
Got a client who has two companies.
1. An LLC taxed as partnership : no w2s Nor guaranteed payment for the partners. Has 3 w2 employees

2. A c-Corp with no employees, no set w2.

Can they set up a simple plan for company 1, and Can partners defer Their pay?
Or do they have to set up w2?

How about the c-Corp situation ? For he have to set up a w2?
Also, would a IRA possible with the c-Corp with or without setting up w2?

Thank you!!



Submitted by William Tuttle on Fri, 2020-09-04 13:29

  • While it is unlikely with multiple partners to be a Controlled Group, any ownership interest raises the likelihood of being considered an Affiliated Service Group (ASG). Under Controlled and Affiliated Service Group rules, both companies would be treated as a single employer for employer retirement plan purposes. Both employers would be required to have the same employer retirement plan with the same features and employer contributions.
  • ASG rules are complicated. You need to contact a knowledgeable professional. Most CPAs or other tax preparers are not knowledgeable enough to determine if this is an ASG. A local TPA or ERISA is likely a better option.
  • Once you determine what plan or plans are allowed:
  • Partners are self-employed individuals and their retirement contributions are based on their net earnings from self-employment (earned income) = their share of business profit – 1/2 SE tax. The IRS has issued repeated guidance that partners can not be paid as a W-2 employee.
  • Maximum IRA contributions are limited to the lessor of the IRA contribution limit and their IRA compensation (see IRS Publication 590-A).
  • A self-employed individual’s IRA compensation is their self-employed earned income less any pre-tax (employee + employer) retirement plan contributions from that income.
  • All W-2 employees’ IRA compensation is their Box1 wages less any Box 11 amount. It does not matter what the buiness entity type is.

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