Pros and Cons to whether Partnership or Partners make retirement contributions?

[qofmiwok]

If partners are paid with guaranteed payments for services, they are eligible to contribute to solo 401k's.  As I understand it, the Partnership can pay the contributions and list it on the K1's.  Or the Partners can pay the contributions themselves and show it on their 1040's (if applicable).  Are there are pros or cons to either method?

[dmertz]

The retirement plan must be established under the partnership and contributions must be reported with code R in box 13 of the partner's Schedule K-1 (Form 1065).  A partner is not permitted to establish a separate employer plan with respect to compensation from the partnership, otherwise there would be a violation of the requirement for equal treatment of all of the partners with respect to the retirement plan.  The deduction for the contributions reported with code R in box 13 is taken on the partner's individual tax return.

[qofmiwok]

Yes, thanks. I was getting confused with another situation.

But I'd love some clarification on your statement about the "requirement for equal treatment of all of the partners with respect to the retirement plan".  
If partners are paid different amounts of guaranteed payment for services, then couldn't that limit the amount that the partnership is able to pay for each person's retirement plan, because it can only pay up to the amount of earned income/guaranteed payment?
i.e. If one partner receives $10,000 in guaranteed payment for services, and the other receives $20,000, then can they receive different retirement contributions by the partnership?

Thanks

[dmertz]

Right.  Equal treatment does not necessarily mean equal dollar amounts.  Equal treatment means that the same contribution rules apply to all such partners.  A solo 401(k) is not permitted to cover other partners (except in the case of a partnership that is a joint venture of spouses), so it could not provide for equal treatment of the other (non-spouse) partners.

[qofmiwok]

Ah, thanks for clarifying.  As the Tax Matters Partner I wanted to make sure I didn't do something wrong by having different partners get different amounts.