individual 401(k) in partnership

Posted by Mark Freeland on February 6, 2007, 9:58 pm

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In a sole proprietorship, profit sharing contributions to an
individual 401(k) (or SEP) can be 20% of the net profits of
the business (hold back 20% for profit sharing, pay the
owner 80%, and then the 20% held back is 25% of remaining
profits - the legal max for contributions to the 401(k)).

Does it work the same way for partnerships, where the
partners may have guaranteed payments ("salary") as well as
drawing profits from the business? Or is one limited to 25%
of the profits after subtracting off the guaranteed payments
(unlike the sole proprietorship)?

Related question - if one is an owner/partner in two
businesses, what is the interplay between profit sharing
contributions of the two businesses? Is is as simple as
following the rules for max profit sharing for each
business, subject to the section 415 limit of $45,000 total
for an individual (2007)? Or is it more complex than that?

Thanks,
Mark Freeland
BnetOnewsX@sbcglobal.net

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