Solo 401k Plan Contribution Question

QUESTION: I have a couple of questions if you don’t mind. What are the dates involved with making contributions? Can I still make a contribution as the employer and employee for 2012?

Assuming I am the only employee in an s-corp, can I only contribute 25% of what I pay myself as W-2 income for the employer contribution or can I use my additional corp profits? I know for 2012 I can do 17K as the employee, so my question is just in regard to the employer contribution. As an example, let say my corp made 100K after expenses in 2012 and I pay myself 50K as a salary(W-2). As the employer can I contribute 25% of 50K or 25% of 100K?


ANSWER: Since your business type is an S-Corporation, you have until you file your Form 1120S (plus extensions) to process your Solo 401k contributions. Both contribution types (employee and employer) are based solely on W-2 income from the business that sponsors the Solo 401k plan (in your case the S-Corp). As such, based on your example, you would qualify to make the following contribution, provided, of course, you did not shift any passive income to your W-2, as passive income does not qualify as W-2 income for Solo 401k contribution purposes and is an item the IRS is on high alert for so double check with your accountant to make sure you are not including passive income:

$12,500 profit sharing contribution

$17,000 employee contribution

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>


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