"KodiakBear" <ellipso[at]eudoramail.com> wrote:

- quote -

Sorry, but you can't avoid self-employment (or the
equivalent withholding) taxes and still have earned income
for purposes of a 401k. Just can't be done.

- quote -

The LLC is not recognized in the Internal Revenue Code. So
it has to be taxed either as a proprietorship (for a single
owner), or an S-corp or a C-corp.

- quote -

100%.

Stu

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

I'm an independent trader who want to set up my own 401K
plan. A "Trader in Securities" is not subject to
self-employment tax. So, mark-to-market election or no,
traders have no earned income from which to fund a
tax-sheltered retirement plan.

If a trader sets up an entity to house their business, the
entity can pay them a "management fee", which would be
earned income. Those earnings would be subject to FICA and
Medicare tax, but could also be used to fund a retirement
plan.

The problem with a C-corp is double taxation.
The problem with a S-corp is self-employment tax.
That leave us with an LLC.
While I prefer to form a single-member LLC, I've heard the
IRS might choose to disregard the entity and tax me as a
sole-proprietor. Also, in the wake of the Albright ruling,
single-member LLC provide no limited liability feature.

That defeats the whole purpose of this exercise.
Anyone know what the risk of this happening are?

If need be, I could bring in a sibling as a minority owner.
This would seem to solve the problem of the enity be
disregarded for liability and tax purposes.

Do you argree?
Would 5 or 10% stake be good enough?

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >