Yes — a partner can use guaranteed payments to make 401(k) contributions, and for 2026 the combined elective deferral and profit-sharing contribution can reach $72,000, or as much as $83,250 with age-based catch-up amounts. Guaranteed payments for services count as earned income for retirement plan purposes because they’re subject to self-employment tax.1Internal Revenue Service. Calculation of Plan Compensation for Partnerships What actually counts, though, depends on the type of guaranteed payment and whether you’re a general or limited partner.
Which Guaranteed Payments Qualify
A guaranteed payment is a fixed amount paid to a partner for services or for the use of capital, set without regard to how the partnership performs financially.2Office of the Law Revision Counsel. 26 USC 707 – Transactions Between Partner and Partnership The partnership deducts it on Form 1065, and the partner reports it as ordinary income on Schedule K-1.3Internal Revenue Service. Publication 541 (12/2025), Partnerships
Only guaranteed payments for services qualify as earned income for the 401(k) calculation. Guaranteed payments for the use of capital, which function more like interest on invested funds, do not.1Internal Revenue Service. Calculation of Plan Compensation for Partnerships The K-1 breaks these into separate lines: box 4a for services, box 4b for capital. Only box 4a feeds the contribution math.4Internal Revenue Service. Partners Instructions for Schedule K-1 (Form 1065) (2025)
General Partners vs. Limited Partners
The type of partnership interest changes what income you can build the contribution on.
A general partner’s earned income includes both guaranteed payments for services and the distributive share of the partnership’s ordinary business income in box 1 of the K-1. General partners pay self-employment tax on both streams, so both count.1Internal Revenue Service. Calculation of Plan Compensation for Partnerships A general partner who receives no guaranteed payment at all can still contribute based on their share of partnership profits.
A limited partner is treated differently. The tax code excludes a limited partner’s distributive share from self-employment income, so the only income that counts for retirement plan purposes is guaranteed payments for services actually performed.5Internal Revenue Service. Entities 1 A limited partner with no guaranteed payment has zero earned income and cannot contribute.
That’s why guaranteed payments dominate the conversation in the partnership 401(k) context: for limited partners, they’re the only path in. General partners who focus only on guaranteed payments when calculating their maximum may be shortchanging themselves.
Calculating the 2026 Maximum
The math is less intuitive than it looks for W-2 employees because partners have to adjust income downward before applying contribution rates. The adjustment exists because you pay both halves of Social Security and Medicare.
Step 1: Net Earned Income
Start with total self-employment earnings: guaranteed payments for services, plus distributive share if you’re a general partner. Calculate self-employment tax on Schedule SE, then subtract half of the SE tax from gross self-employment earnings. The result is net earned income.6Internal Revenue Service. Self-Employed Individuals – Calculating Your Own Retirement Plan Contribution and Deduction The half you deduct represents the employer-equivalent portion of payroll tax.7Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
For 2026, Social Security tax applies to the first $184,500 of combined wages and self-employment income at 12.4%, and Medicare of 2.9% applies to all self-employment earnings with no cap.8Social Security Administration. Contribution and Benefit Base
Step 2: Elective Deferral
For 2026 you can defer up to $24,500 as an elective (pre-tax or Roth) contribution. Add $8,000 if you’re 50 or older, bringing the total to $32,500. SECURE 2.0 provides a higher catch-up for participants aged 60 through 63: $11,250 for 2026, which pushes the maximum deferral to $35,750 for that age band.9Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
Your deferral can’t exceed your earned income. If your net earned income is only $18,000, that’s your cap regardless of the statutory limit.
Step 3: Profit-Sharing Contribution
The partnership can also make a profit-sharing contribution on your behalf. The statutory cap is 25% of plan compensation, but because the contribution itself reduces the compensation it’s calculated on, the effective maximum rate for self-employed individuals works out to 20% of net earned income.6Internal Revenue Service. Self-Employed Individuals – Calculating Your Own Retirement Plan Contribution and Deduction Publication 560 has rate tables and worksheets for the exact figure.
Step 4: Overall Cap
The combined total of elective deferral and profit-sharing contributions cannot exceed $72,000 for 2026. Catch-up contributions sit on top of that cap, so a partner aged 50 or older can shelter up to $80,000, and one aged 60 through 63 can reach $83,250.10Internal Revenue Service. Notice 25-67 – 2026 Amounts Relating to Retirement Plans and IRAs
A Worked Example
Take a 45-year-old general partner with a $150,000 guaranteed payment for services and no distributive share. SE tax comes to about $21,200 (12.4% Social Security on the taxable portion plus 2.9% Medicare on the full amount). Half of that SE tax is roughly $10,600, so net earned income is about $139,400. The maximum profit-sharing contribution is 20% of $139,400, or about $27,880. Add the $24,500 elective deferral and the shelter totals roughly $52,380, well under the $72,000 cap. The partnership deducts the full amount.
When a Partnership Loss Cuts Into the Contribution
A general partner’s contribution capacity moves with the partnership’s results. A year of ordinary business loss reduces net earnings from self-employment, and a large enough loss can offset the guaranteed payment entirely.1Internal Revenue Service. Calculation of Plan Compensation for Partnerships If net earnings from self-employment drop to zero, there’s no earned income and no allowable contribution for the year.
This is uncomfortable for partners who set deferral amounts early in the year based on projected income. If partnership performance deteriorates, reduce or stop deferrals mid-year to avoid an excess contribution. Watching the partnership’s financials during the year, rather than waiting for the final K-1, is how you stay ahead of it.
Reporting and Deadlines
The guaranteed payment appears on your K-1 at its gross amount, before any deferral reduction. That gross figure is the starting point for Schedule SE.11Internal Revenue Service. Instructions for Schedule SE The deduction for your retirement plan contribution then goes on Schedule 1 of Form 1040, on the line for self-employed retirement plans.12Internal Revenue Service. 2025 Schedule 1 (Form 1040)
The partnership deducts both the elective deferrals and profit-sharing contributions on Form 1065 as part of the guaranteed payment expense or as a separate retirement plan deduction, which reduces ordinary business income.3Internal Revenue Service. Publication 541 (12/2025), Partnerships
Deposit deadlines split by contribution type. Elective deferrals must reach the plan trust no later than the 15th business day of the month following the month withheld, and the Department of Labor treats that as an outside limit rather than a safe harbor. Deposits should happen as soon as administratively feasible.13Internal Revenue Service. 401(k) Plan Fix-It Guide – You Havent Timely Deposited Employee Elective Deferrals Profit-sharing contributions can be made as late as the partnership’s tax filing deadline, including extensions. For a calendar-year partnership on extension, that’s September 15 of the following year.14Internal Revenue Service. Issue Snapshot – Deductibility of Employer Contributions to a 401(k) Plan Made After the End of the Tax Year
One boundary to know: the SECURE 2.0 provision allowing retroactive plan adoption after year-end applies only to sole proprietors who are the only employee of the business. Partnerships don’t qualify, so the plan must be established before December 31 of the year you want to make deferrals.
What Excess Contributions Cost
The penalty for miscalculating is real. Elective deferrals over the annual limit must be distributed by April 15 of the following year, together with any earnings on the excess. Miss that date and the excess is taxed twice, once in the year of deferral and again when it’s eventually distributed.
Excess profit-sharing contributions above the deductible limit trigger a 10% excise tax for each year the excess sits in the plan, reported on Form 5330. Carrying the excess forward and applying it against future contributions is the cleanest fix, but the excise tax keeps accruing until the overage is absorbed. Running the calculation on final K-1 numbers, rather than estimates, is far cheaper than cleaning up later.