Solo 401(k) for PartnerShip firm

Submitted by sam Kick on Thu, 2017-10-05 19:38

Hi,

We have a small LLC parnership company. with 4 Partners. We receive K1 Income today from the Company. 3 of the partner wanted to invest in the 401K/SEP IRA. As not all Partner want to Contribute i do not think we can do SEP IRA. So only Option is Solo 401K in which each partner can contribute X amount and company can match Y% for the amount contributed by partner.

Will Solo 401K is correct fit for us?



Submitted by William Tuttle on Fri, 2017-10-06 16:46

  • Yes, a partnership can have a so-called one-participant plan (obviously a misnomer) provided the only eligible employees are the partners and optionally any spouse. If there are other employees, there may be a way to exclude them. Otherwise you can not have a one-participant 401k plan.
  • The partnership would have to formally agree adopt the plan and accept an employer match percentage. However, employer matches are not typically used in one-participant plans and the non-contributng partner would receive less total income.
  • A better way to structure this might be for each partner to receive 20% of their net self-employment earnings as an tax-deferred employer contribution. The non-contributing employee could then elect to receive this as further taxable compensation.
  • I am not a retirement plan specialist or TPA. So you would have to check on this to see if it is permitted. It may not pass anti-discrimination rules.
  • It would be a lot easier if all the partners wanted to receive the same benefits.

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