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. Am I losing the right to collect spousal Social Security benefits before I collect ...

    The short answer is yes, if you haven't reached age 62 by December 31, 2015. The Bipartisan Budget Act of 2015 disrupted ... Read Full Answer >>
  2. Where else can I save for retirement after I max out my Roth IRA?

    With uncertainty about the sustainability of Social Security benefits for future retirees, a lot of responsibility for saving ... Read Full Answer >>
  3. Will quitting your job hurt your 401(k)?

    Quitting a job doesn't have to impact a 401(k) balance negatively. In fact, it may actually help in the long run. When leaving ... Read Full Answer >>
  4. Can a 401(k) be taken in bankruptcy?

    The two most common types of bankruptcy available to consumers are Chapter 7 and Chapter 13. Whether you file a Chapter 7 ... Read Full Answer >>
  5. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  6. Who can make catch-up contributions?

    Most common retirement plans such as 401(k) and 403(b) plans, as well as individual retirement accounts (IRAs) allow you ... Read Full Answer >>
Related Articles
  1. Investing Basics

    How To Invest In Private Companies

    Owning a private firm means sharing more directly in the underlying firm’s profits.
  2. Entrepreneurship

    How to Run a One-Person Business

    Learn how to get a successful one-person business up and running with a business plan, financing, time-management tricks and delegation of tasks.
  3. Savings

    What Your Credit Score Means for Your Love Life

    Wondering if your significant other wants to commit and is reliable? The Fed might have the answer.
  4. Entrepreneurship

    Top Legal Tips for Starting a Business

    Before you launch a new business, make sure you're on top of the key issues that most startups face.
  5. Your Clients

    Tips for Making Your Nest Egg Last Longer

    If you’re trying to figure out how to make your hard-earned nest egg last, there’s one piece of advice that stands above the rest.
  6. Investing

    3 Healthy Financial Habits for 2016

    ”Winning” investors don't just set it and forget it. They consistently take steps to adapt their investment plan in the face of changing markets.
  7. Investing News

    The 10 Fastest Growing Green Startups in 2016

    These social entrepreneurs adopt triple bottom lines that champion urgent environmental problems while generating returns for shareholders.
  8. Retirement

    Early Out: A Realistic Plan to Retire Younger

    If you want to retire ahead of schedule, it'll take some extra planning.
  9. Mutual Funds & ETFs

    Which Fund Share Class is Best for Retirement?

    Mutual funds are a popular investment for retirement. Here's how to choose the best share class when investing in them.
  10. Retirement

    6 Robo-Advisors That Require Little to Start

    There are many well-regarded robo-advisor options that come with minimum investment amounts. Here are snapshots of a handful of them.
RELATED TERMS
  1. Entrepreneur

    An individual who, rather than working as an employee, runs a ...
  2. Sequence Risk

    The risk of receiving lower or negative returns early in a period ...
  3. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  4. Firm

    A firm is a business organization, such as a corporation, limited ...
  5. Operating Cost

    Expenses associated with the maintenance and administration of ...
  6. Venture Capitalist

    An investor who either provides capital to startup ventures or ...
Trading Center