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 2014 401(k) contribution limits?

    Learn how limitations for 401(k) plans can change; find out what the contribution limits, annual limits and compensation ... Read Answer >>
  2. Can you have a 403(b) and also contribute to a 401(k)?

    Yes. You may participate in both a 403(b) and a 401(k) plan. However, certain restrictions may apply to the amount you can ... Read Answer >>
  3. My husband has become eligible for a 401(k) plan (with no matching contribution) ...

    Your husband's employer should check the retirement plan box on line 13 of the 2005 Form W-2 only if your husband elects ... Read Answer >>
  4. I have several jobs. Can I contribute the maximum to multiple employer retirement ...

    It depends. A question such as this requires detailed information in order to provide a helpful response. Here is a general ... Read Answer >>
Related Articles
  1. Retirement

    401(k) Contribution Limits in 2016

    Find out what the contribution limits are for 401(k) retirement savings plans in 2016, including individual, employer and aggregate limits.
  2. Retirement

    It’s Never Too Late to Contribute to Your 401(k)

    Find out why it is never the wrong time to start contributing to a 401(k), even in your late 30s, 40s or 50s; discover how to maximize your savings at any age.
  3. Retirement

    How Much Can You Contribute to Your 401(k)?

    Given the fairly high compensation limits on these retirement plans, most workers can pitch in more than they currently do.
  4. Retirement

    Common Questions About Retirement Plans

    We offer some solutions for the individual taxpayer as well as the small business owner.
  5. Financial Advisor

    Retirement Planning for the Self-Employed

    How to select a qualified retirement plan if you are self-employed and have no employees.
  6. Retirement

    Why are 401(k) contributions limited?

    Find out why contributions to 401(k) retirement plans are limited, including what the current contribution limits are and how limits encourage participation.
  7. Small Business

    Plans The Small-Business Owner Can Establish

    Don't hesitate to adopt a smart plan for you and your employees.
  8. Retirement

    401(k) Plans For The Small Business Owner

    If you own a business, this may be the plan for you! Find out about its benefits and eligibility requirements.
  9. Retirement

    6 Problems With 401k Plans

    If you pay attention to the problems here, you will be able to avoid the negative effects and meet your retirement goals.
  10. Retirement

    4 Ways to Maximize Your 401(k)

    Prime your 401(k), 403(b) or other defined contribution plan by using these techniques to boost your average rate of return.
RELATED TERMS
  1. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  2. Roth 401(k)

    An employer-sponsored investment savings account that is funded ...
  3. Matching Contribution

    A type of contribution an employer chooses to make to his or ...
  4. Independent 401(k)

    A 401(k) plan set up for an individual running a sole proprietorship ...
  5. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt ...
  6. Tax-Sheltered Annuity

    A type of annuity that allows an employee to make contributions ...
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center