A partnership makes annual contributions to a partner's Self-Directed Solo 401k retirement plan based on his or her net earned income.
Net earned income
For a partner net earned income is calculated in the same way as for most other self-employed Self-Directed Solo 401k plan participants by starting with the partner's earned income and then subtracting:
IRS Publication 560 has tables and worksheets to calculate the deduction for contributions to a qualified plan for a partner.
Partner's earned income
A partner's earned income is the income he or she receives for his or her services to materially help produce that income (see Code 1402 and 401(c)(2).) A partner must separately calculate her or his earned income for each trade or business.
Not every partner may have earned income (for example, a limited partner who does not provide services to the partnership and is merely an investor). Also, all of a partner's income from the partnership may not be earned income (for example, investment income that is passed through the partnership to the partners). As a result, contributions may not be made to Solo 401k if net income is not generated.
Reporting a partner's earned income
Each partner's earned income or loss is listed on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. The partnership must give a Schedule K-1 to each partner by the filing due date (including extensions) of the partnership's Form 1065, U.S. Return of Partnership Income (instructions).
Additional Information:
Publication 541, Partnerships
Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
Net earned income
For a partner net earned income is calculated in the same way as for most other self-employed Self-Directed Solo 401k plan participants by starting with the partner's earned income and then subtracting:
- plan contributions for the partner, and
- half of her seal-employed tax.
IRS Publication 560 has tables and worksheets to calculate the deduction for contributions to a qualified plan for a partner.
Partner's earned income
A partner's earned income is the income he or she receives for his or her services to materially help produce that income (see Code 1402 and 401(c)(2).) A partner must separately calculate her or his earned income for each trade or business.
Not every partner may have earned income (for example, a limited partner who does not provide services to the partnership and is merely an investor). Also, all of a partner's income from the partnership may not be earned income (for example, investment income that is passed through the partnership to the partners). As a result, contributions may not be made to Solo 401k if net income is not generated.
Reporting a partner's earned income
Each partner's earned income or loss is listed on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. The partnership must give a Schedule K-1 to each partner by the filing due date (including extensions) of the partnership's Form 1065, U.S. Return of Partnership Income (instructions).
Additional Information:
Publication 541, Partnerships
Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
RSS Feed