**Reporting 401(k) Plan Participant Data on Schedule K-1**
For pass-through entities such as S-corporations, limited liability companies (LLCs), and trusts, contributions made by participants to a 401(k) plan must be reported on the K-1s distributed to owners and beneficiaries. Here are the key considerations:
**1. Form Selection:**
Distribute Schedule K-1 (Form 1065), Line 15, for S-corporations and Partnerships. Use Schedule K-1 (Form 1041), Line 13, for trusts and estates.
**2. Line Entries:**
* **Ordinary Income (Line 1c):** Report pre-tax employee contributions (“salary deferrals”).
* **Other Income (Line 11):** Report employer matching contributions not subject to FICA or federal income tax (other than elective deferrals).
* **Other Income (Line 14):** Report any earnings and profits (E&P) or income in respect of a grantor trust (IDGT) distributed from the trust to the beneficiary’s 401(k) account.
**3. Designation:**
* Include the plan’s EIN, plan name, and plan number in Box 13 (Other).
* Indentify the type of contribution on the other income lines (e.g., “Employer matching contribution”)
**4. Adjustments to Shareholder’s Taxable Income:**
* Subtract elective deferrals from taxable income on Line 14a.
* Include employer matching contributions in taxable income on Line 14a.
**5. Additional Considerations:**
* If the plan allows for allocation of employer contributions to designated accounts (non-elective deferrals), report these amounts as ordinary income (Line 1c).
* Distributions from the 401(k) plan are generally reported to beneficiaries on Form 1099-R.
Partner 401(k) Contribution Basics
Partners in a partnership are self-employed individuals who share in the profits and losses of the business. They are not considered employees, so they are not eligible for traditional 401(k) plans. However, partners can make elective deferrals to a simplified employee pension (SEP) plan or a partner 401(k) plan.
- SEP plans are available to self-employed individuals and small businesses with up to 100 employees. Partners can contribute up to 25% of their net income, or $66,000 in 2023, whichever is less.
- Partner 401(k) plans are available to partnerships with more than 100 employees. Partners can contribute up to the lesser of 25% of their net income or the annual contribution limit, which is $66,000 in 2023.
Partner 401(k) contributions are reported to partners on Schedule K-1 (Form 1065), Line 16, Code E.
| Code | Description |
|---|---|
| E | Partner’s share of employer contributions to qualified pension, profit-sharing, or annuity plans (sec. 401(a) and 403(a)) |
Schedule K-1 Pass-Through Reporting
For partnerships, Schedule K-1 (Form 1065) is used to report each partner’s share of income, deductions, and credits from the partnership. This includes reporting contributions made by the partnership to a partner’s 401(k) plan.
Reporting Partner 401(k) Contributions
- Line 14, Code A: Enter the partner’s share of 401(k) contributions made by the partnership.
- Line 19, Code A: Enter the partner’s share of earnings on the partnership’s 401(k) investments.
Avoiding Double Taxation
To avoid double taxation, the partner must report the 401(k) contributions on their individual income tax return, but not the earnings. The earnings are reported when the partner withdraws the funds from the 401(k) plan.
Reporting on Line 14, Code A
The amount reported on Line 14, Code A, is subject to the following limits:
| Year | Contribution Limit |
|---|---|
| 2023 | $22,500 |
| 2024 | $23,500 |
Reporting on Line 19, Code A
The earnings reported on Line 19, Code A, are not subject to income tax until the partner withdraws the funds from the 401(k) plan.
Self-Employment and 401(k) Contributions
As a self-employed individual, you may be eligible to establish a 401(k) plan and make tax-deductible contributions. However, the rules for reporting these contributions differ from those applicable to employees.
Partner 401(k) Contributions in K-1
When you’re a partner and your partnership makes 401(k) plan contributions on your behalf, those contributions are reported on your Schedule K-1 (Form 1065). Form 1065 provides detailed information on the income, deductions, and credits passed through to each partner.
The partner’s K-1 will include the following information about 401(k) contributions:
| Box | Description |
|---|---|
| 12 | Code E |
| 13 | Employer-Sponsored Retirement Plans |
The employer-sponsored retirement plans amount in Box 13 includes both employee and employer contributions. To determine your deductible contributions, you must subtract the amount of employee contributions from the total reported in Box 13. Refer to your partnership agreement, payroll records, or other partnership records for this information.
Reporting on Tax Returns
When filing your individual tax return, you report deductible 401(k) contributions on Form 1040, Schedule 1 (Form 1040). The deductible amount is entered on Line 19 of the form, which calculates the total amount of your deductible IRA and 401(k) contributions.
Tax Implications for Partners and LLC Members
Distributions from a partner’s 401(k) account are subject to ordinary income tax. When a partner withdraws funds from their 401(k) account, they will have to pay taxes on the amount withdrawn. The amount of tax owed will depend on the partner’s tax bracket.
In addition, partners may be subject to a 10% early withdrawal penalty if they take money out of their 401(k) account before they reach age 59½. The early withdrawal penalty is in addition to the ordinary income tax that is owed.
LLC members are not subject to the same tax rules as partners. When an LLC member withdraws funds from their 401(k) account, they will have to pay ordinary income tax on the amount withdrawn. However, LLC members are not subject to the 10% early withdrawal penalty.
| Type of Entity | Tax Implications |
|---|---|
| Partnership | Distributions from a partner’s 401(k) account are subject to ordinary income tax. Partners may be subject to a 10% early withdrawal penalty if they take money out of their 401(k) account before they reach age 59½. |
| LLC | Distributions from an LLC member’s 401(k) account are subject to ordinary income tax. LLC members are not subject to the 10% early withdrawal penalty. |
Well, there you have it. A step-by-step guide on handling those pesky Partner 401k contributions. Remember, even though taxes can be a drag, don’t neglect them. Stay on top of your responsibilities, and the tax man will be a bit more friendly. Cheers to understanding your K-1!
Thanks for taking the time to read this article. If you’re still scratching your head or have any more tax-related questions, don’t hesitate to swing by again. We’ll be here, geeking out over numbers and untangling tax codes. So, hasta la vista, tax warrior, and see you next time!