Rules of a Limited Partnership Stock 401K

by Sherrie Scott

A limited partnership is a business structure that provides partners with limited personal liability from debts and legal obligations of the business. The Internal Revenue Service establishes specific rules regarding the types of businesses that can establish a qualified retirement plan. According to IRS regulations, a limited partnership can establish a 401k, but the company must observe certain rules regarding plan contributions, investments and distributions.

Plan Set-Up

Limited partners must set up and operate a 401k plan according to IRS rules. Partners can set-up a 401k plan themselves or hire a professional mutual fund or insurance company to establish and maintain the retirement account. To create a plan, the IRS requires the limited partnership to establish a plan document that illustrates important plan information such as how to participate, contribution limits and other relevant plan provisions. The partnership must also establish a trust fund to hold the assets of the plan as well as set up a system to maintain records related to contributions, gains and losses and plan distributions. Partners must deliver plan documents to all eligible participants and qualified employees.

Asset Investment

Once the partnership establishes a 401k plan, the company must decide which investment options are most suitable for the organization. There are a variety of investment options available to 401k participants, including mutual funds as well as individual stocks and bonds. Financial institutions and plan service providers typically manage participant's investments and assist with supervising investment performance. Stock investments, or equities, account for 60 percent of assets invested in 401k plans as of 2009, according to the Employee Benefit Research Institute. 401k stock investments include company stock, equity funds and balanced funds with a substantial equity portion.


The maximum contribution a plan participant can make to a limited partnership 401k is the lessor of 100 percent of the participant's total compensation or $49,000 for 2010 and 2011, according to the IRS. Owners and employers over age 50 are allowed catch-up contributions of $5,500 for 2010 and 2011. Plan contributions typically occur through payroll deduction.


A distribution is a withdrawal from a qualified retirement plan. A 401k plan participant can take a distribution from the retirement account only under certain circumstances. According to the IRS, if the employee retires, dies, becomes disabled or leaves employment, he is typically eligible for a distribution. Plan participants can also take a distribution if the partnership decides to end the plan and does not establish another in its place. In some cases, if a participant suffers a financial hardship, he may qualify for a distribution before retirement age. Participants can also rollover the distributions into a different retirement vehicle such as an IRA or annuity.

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