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?
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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