I have a small business (LLC), which I operate part-time. I also work full time for a company and am enrolled in a 401(k) plan. Am I still eligible to make contributions to an individual 401(k) from earnings of my part-time LLC?

By Denise Appleby AAA
A:

As long as you have no ownership in the company for which you work full-time and the only relationship you have with the company is as an employee, you can establish an independent 401(k) for your limited liability company (LLC) and fund the plan from the earnings you receive from the company. However, your aggregate salary deferral contributions to both plans cannot exceed $15,500 for the year, or $20,500 if you are at least age 50 by the end of the year. (Note: These figures are for 2007.)

Bear in mind also that if the company is operated as a corporation, your contributions to the plan can be based only on the W-2 wages you receive from the LLC.

Contributions to the individual 401(k) plan can be as follows:

  • Salary deferral cannot exceed $15,500 ( or $20,500 as noted earlier), less any salary deferral contributions you make to your full-time employer's plan.
  • The profit-sharing contribution component can be no more than the lesser of (a) 25% of W-2 wages or 20% of Schedule-C income or (b) $45,000.
  • The aggregate contributions to your individual 401(k) plan can be no more than $45,000 plus catch-up contributions.

This question was answered by Denise Appleby
(
Contact Denise)

RELATED FAQS

  1. What are the 403(b) contribution limits?

    Determine whether 403(b) contributions meet federal guidelines. Contribution limits to this retirement plan are determined ...
  2. Can I roll over a 403b plan?

    Learn whether distributions from a 403(b) plan can be rolled over, where they can be rolled over to and what the income tax ...
  3. What is the difference between a 408 (k) plan and a 401 (k) plan?

    Learn key differences between 401(k) and 408(k) plans. Employers provide different options to help employees save for retirement, ...
  4. Is a 408 (k) the same as a Simplified Employee Pension (SEP)?

    Find out the differences and the similarities between a 408(k) retirement plan and a simplified employee pension (SEP), and ...
RELATED TERMS
  1. Provisional Patent Application

    A short-term means of protecting an invention that requires less ...
  2. Cottage Industry

    A small-scale industry often operated out of a home, rather than ...
  3. Peter Pan Syndrome

    A regulatory environment in which firms prefer to stay small ...
  4. LLC Operating Agreement

    An LLC Operating Agreement is a document that customizes the ...
  5. Franchise disclosure document

    A Franchise Disclosure Document (FDD) is a legal document presented ...
  6. Michael Bloomberg

    Michael Bloomberg is one of the wealthiest persons in the world ...
comments powered by Disqus
Related Articles
  1. 10 Common Retirement Planning Mistakes ...
    Retirement

    10 Common Retirement Planning Mistakes ...

  2. Essential Tips For Would-Be Entrepreneurs
    Entrepreneurship

    Essential Tips For Would-Be Entrepreneurs

  3. Why, How, Where and When Entrepreneurs ...
    Entrepreneurship

    Why, How, Where and When Entrepreneurs ...

  4. Why Entrepreneurs Are Important for ...
    Entrepreneurship

    Why Entrepreneurs Are Important for ...

  5. 7 Steps To Evaluate A Financial Adviser
    Investing Basics

    7 Steps To Evaluate A Financial Adviser

Trading Center