Expert: Allen - 9/24/2006

Question
What are the retirment options available to a single member LLC?
Is it mandatory for the member to draw a salary to be eligilbe for retirmenet plan?

Answer
The options available to you are the same as those available to any business. The only caution is that the income must be for services rendered rather than passive income (for example, that received as a real estate investor). Some of the available alternatives are 401k, profit sharing, and defined benefit.

As far as the question on salary, there is a misconception among many accountants. An owner of an unincorporated business does not receive salary as far as the IRS is concerned. He/she may receive advances and taxes may be withheld on those advances, but the only correct way to report income is on Schedule C (if there is only one owner) or Schedule K-1 (if there is more than one owner). Income should not be reported on a W-2. There is an old IRS Revenue Ruling saying this.