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PDtax
PDtax, CPA firm owner
Category: Tax
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Experience:  32 years tax experience, including four years at a Big 4 firm.
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I had asked a question previously when a SEP IRA was used,

Resolved Question:

I had asked a question previously when a SEP IRA was used, however, I have a different twist to a different type of plan. Again this is a muti-member LLC filing as a partnership. The partners are a husband and a wife who file jointly on the individual level, however the type of retirement plan is a "Self-employed 401K". There are no other employees. Since it it a self-employed 401K I need the following answered:
Where do I find how to calculate the maxmum contribution for each member for a self-employed 401K?
Where and how is it recorded on the 1065?
Where is it recorded on the 1040?
Submitted: 1 year ago.
Category: Tax
Expert:  PDtax replied 1 year ago.

PDtax :

Welcome to the site. I will be helping you today.

Expert:  PDtax replied 1 year ago.
Hi Jim,

Can I confirm the LLC is taxed as a partnership, with the husband and wife being the only partners? Is so, if affects how to calculate the base for contributions. It may have to be treated as a LLC being treated as a sole proprietorship.

PDtax
Customer: replied 1 year ago.

Yes it has been reported on the 1065 in previous years. The husband wife are the only partners with no employees.

Expert:  PDtax replied 1 year ago.

As I understand it, there are two pieces of the income to base the calculation on. In 2013, 100% of net adjusted business profits income up to the maximum of $17,500 or $23,000 if age 50 or older can be contributed in salary deferrals into a Self Employed 401k (2012 limits are $17,000 and $22,500 if age 50 or older). Net adjusted business profit is calculated by taking gross self employment income and then subtracting business expenses and then 1/2 of the self employment tax. You can then add a profit sharing contribution up to 20% of net adjusted businesses profits. Net adjusted business profit is calculated by taking gross self employment income and then subtracting business expenses and then 1/2 of the self employment tax. This math can be different if the owners are paid a W-2 salary. If so, in an effort to split, or bifurcate, profits into wages (subject to FICA/Medicare withholdings) and business profits, that the first part of the calculation is based on their wages only. Thanks for asking at Just Answer/PDtax.

Customer: replied 1 year ago.


PDTax:


I kind of follow your calculation. Is this a part of Publication 560? Can you reference me to a page. Also, where is this recorded in 1065 (K1)?

Expert:  PDtax replied 1 year ago.
Pub 560 does not directly go over self-employed 401(k) plans.

IRS did offer public notice for their treatment, in their 2008 Nationwide Tax Forum report on the subject. http://www.irs.gov/pub/irs-tege/forum08_401k.pdf is a link to their material.

Note the difficulty is in finding information about the funding limits for self-employed plans. The material cites code sections, so you can back up the math with the cites.

Thanks again for asking at Just Answer/PDtax.
PDtax, CPA firm owner
Category: Tax
Satisfied Customers: 2190
Experience: 32 years tax experience, including four years at a Big 4 firm.
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