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. How are contingent liabilities reflected on a balance sheet

    Find out how to identify, treat and report contingent liabilities on the balance sheet. See how the U.S. GAAP requires contingent ...
  2. How can I set up an accrual accounting system for a small business?

    Read about some of the steps a small business should follow when establishing an accrual accounting system to track revenues ...
  3. Should I purchase a master limited partnership (MLP) in my retirement account?

    Learn why investors may have to pay taxes on dividends from master limited partnerships, or MLPs, held in individual retirement ...
  4. How should I invest the money I keep on my IRA?

    For individuals who are just starting to save, certificates of deposit can be a good place to start, but the interest rates ...
RELATED TERMS
  1. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  2. Freelancer

    A freelancer is an individual who earns money on a per-job or ...
  3. Self Invested Personal Pension (SIPP)

    A tax-efficient retirement savings account available in Great ...
  4. Donation-based Crowd Funding

    Donation-based crowdfunding is a way to source money for a project ...
  5. Age Discrimination In Employment Act Of 1967

    A federal statute protecting "certain applicants and employees" ...
  6. Elder Care

    Elder care, sometimes called elderly care, refers to services ...

You May Also Like

Related Articles
  1. Entrepreneurship

    The Story Behind Google's Success

  2. Mutual Funds & ETFs

    This Gold ETF is Fine for Traders, Not ...

  3. Entrepreneurship

    How To Profit From Solar Energy

  4. Entrepreneurship

    New Battery Technology Investment Opportunities

  5. Entrepreneurship

    The Story Behind Shake Shack's Success

Trading Center