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
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  1. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>
  2. Can catch-up contributions be matched?

    Depending on the terms of your plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans ... Read Full Answer >>
  3. Are catch-up contributions included in actual deferral percentage (ADP) testing?

    Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>
  4. Who offers 401(k) plans?

    401(k) plans are one of the most common retirement plans available. A 401(k) plan must be offered by a business. These plans ... Read Full Answer >>
  5. Can LLCs have employees?

    A limited liability corporation (LLC) can have an unlimited number of employees. An employee is defined as any individual ... Read Full Answer >>
  6. Can a 401(k) be used for a house down payment?

    A 401(k) retirement plan can be tapped to raise a down payment for a house. You can either borrow money or make a withdrawal ... Read Full Answer >>
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