- quote -

Phoebe & Ed are correct: a partner in a partnership is a
whole different animal. If you have partners, without a
corporate election, the partnership as employer must set up
the plan and each partner treated equally (subject perhaps
to the more complex scenarios outlined by Mr. Zollars).

But, you used "I" in phrasing your question: If you don't
have partners (ie; "co-owners" of the business), the LLC
should not be reported as a partnership with a K-1 to you.
Instead, it should be reported on a Schedule C, or maybe
elect to be treated as a corporation.

A partnership or any other organization with a few employees
is not a good 401-K candidate: The administration costs
become substantial and more suited to a company with many
employees. For only a few employees, the question becomes
how much will it cost me to fund employee accounts so as to
maximize my deduction. The answer will depend on your
situation and cannot be properly addressed in this forum.

K. Belsak, CPA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Ed Zollars, CPA wrote:
- quote -

That you can't go down to your broker and get the cheap and
easy off-the-shelf, no 5500 until you've stashed a bundle,
pre-packaged 401(k) product.

- quote -

Yep!

Phoebe

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Phoebe Roberts, EA wrote:

- quote -

On that last phrase, I suppose it depends what you mean.
However, it's important to note that the law contains no
special reference to a "Uni-K" or anything similar--that's
simply a marketing term used by some who peddle 401(k) plans
to sole proprietors and one man corporations.

That said, conceptually the idea still would work, though
(as I think you are actually suggesting) the partnership
must be the entity to sponsor the 401(k), *NOT* the
individual partner. You have to be an "employer" to sponsor
the plan, and sole proprietors and partnerships are made
"employers" of the proprietor and partners for these
purposes by the IRC. But just as an individual employee
can't be the sponsor of a SEP or 401(k), neither can a
single partner.

That said, if the partnership has no employees and only,
say, two equal partners, you have tons of flexibility in
designing a plan, including one that basically covers only a
single partner (at least if it's a defined contribution
plan, which includes profit sharing plans with elective
deferral features--otherwise known as 401(k)s <grin> ).
That's because, each of the 50% partners is, by definition,
a highly compensated employee and (far more important) there
no non-highly compensated employees to create testing
problems.

Now, if you expect to go down to your local discount broker
and get an off the shelf plan for this situation, I expect
you'll be disappointed--this would pretty much require a
plan professional who is in the business of designing plans
(as opposed to giving out "one size fits all" products).
But for those people it's a pretty simple design issue. It
would be simple to design a solution so that one partner got
the maximum deductible deferral to his account, while the
other got all cash, though it would require some integration
of the plan with the partnership agreement.

SEPs are a different beast entirely in this regard, because
they are not designed to allow this sort of flexibility.
With a SEP, you'll need to cover both partners and have a
very limited ability to skew the contributions one direction
or the other.

As an aside--I suspect there are a number of "Uni-K" plans
adopted out there that are excluding employees that should
be covered under the plan. One of the real dangers of the
mass-marketed, off the shelf do-it-yourself plan packages is
that quite often nobody takes responsibility for insuring
that, in fact, the plan is being operated in accordance with
the law.

It could get nasty if the DOL starts looking at some of
these plans to see if, in fact, they really did only need to
cover the owner.

--
Ed Zollars, CPA
Phoenix, Arizona

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

John Segars wrote:

- quote -

That's a whole different animal. I take the position that
if the LLC-taxed-as-a-partnership didn't establish the SEP,
calculate your deduction, and make the contribution (which
would be reported as a separately stated item on your K-1),
you have no allowable SEP contribution for 2003.

Likewise for the SIMPLE and potential 401(k). I don't
believe that a Uni-K works in a partnership situation.

Phoebe

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"KenB" <belsak_cpa[at]msn.com> wrote:
- quote -

I had not even considered that, but will certainly
investigate it. Also, I reported my income on Schedule E,
Part II as income from a partnership shown on a K-1. Will
that still work with the solo 401-K? Again, thank you for
your assistance.


<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

jsegars[at]sc.rr.com (John Segars) wrote:

- quote -

Terminate the SEP and forget about the SIMPLE.

If you want maximum flexibility, deduction, and simplicity,
you should consider a "solo 401K" type of plan. Any amount
up to $13,000 (possibly more) may be put into it for 2004 if
you have at least that amount in earnings. An additional 25%
of your earnings can also be put in. Thus, at $40,000
earnings level, you can put in and deduct any amount between
$0 and $23,000 total for 2004.

These plans are (in the last year or two) becoming readily
available at almost all big investment houses. They do not
work well if you have any employees other than your spouse.
The plan must be set up during the year. The deferral part
must be deposited shortly after it is earned/deferred. The
25% part may be deposited at any time up until the due date
of the tax return. You may do either the deferral, the 25%,
or both. You don't have to put anything in if you don't want
to.

If your income is reported on Schedule C, your earnings are
after expenses. If your LLC is incorporated (operating as a
C or an S Corp), your earnings are only what will be
reported on a W-2. Generally, only income subject to social
security or self employment taxes is used to determine the
plan contributions. And note that the plan contributions
will not reduce your social security or self employment
taxes, only your income taxes.

There is an annual filing requirement when plan assets
exceed $100,000, but it is a simplified EZ type of form.

The "solo 401K" is, in my opinion, the almost too good to be
true plan. And if your spouse helps you in your business,
you can effectively double the contributions depending on
how much you pay him or her.

I also recommend my clients consider funding a Roth IRA each
year if their income allows it.

(These comments are necesarily general and they simplify or
omit certain considerations that may be important in your
situation. You should talk to a CPA or EA.)

K. Belsak, CPA
Atlanta, GA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

I have searched the groups but can't find an answer to my
exact question. I do consulting work and am organized as an
LLC. I established a SEP for 2003 (mainly because I didn't
realize the SIMPLE needed to be done last year). This is my
3rd year. Last year I cleared about $40K. (My first year was
basically breakeven with start up costs and only 6 months of
work.) I expect I will be in the $40-60 K range again this
year, so the SIMPLE would let me defer more income. Can I
keep both plans in force and contribute to whichever one
allows the most deferral in a given year (optimistically
hoping the SEP will be that one day).

I did read you can't contribute to both at the same time.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->