solo 401(k) clarification


M

mariakucpa

My client has a solo 401(k) tied to her private sole proprietorship attorney practice, and she also has W-2 income from her work as an employee for a different employer.

I know that the profit-sharing portion of her solo 401(k) contribution can be made only if her private practice earnings exceed expenses (that is, only if there is an actual profit from that portion of her sole proprietorship work). Is my understanding correct that the salary deferral portion (the $17,500) of the contribution to her solo 401(k) can be sent in anytime during the year, without waiting to see if there is an end-of-year profit. Is this correct?

Thank you,


Maria U. Ku, C.P.A.
Oakland, CA
 
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A

Alan

My client has a solo 401(k) tied to her private sole proprietorship attorney practice, and she also has W-2 income from her work as an employee for a different employer.

I know that the profit-sharing portion of her solo 401(k) contribution can be made only if her private practice earnings exceed expenses (that is, only if there is an actual profit from that portion of her sole proprietorship work). Is my understanding correct that the salary deferral portion (the $17,500) of the contribution to her solo 401(k) can be sent in anytime during the year, without waiting to see if there is an end-of-year profit. Is this correct?

Thank you,


Maria U. Ku, C.P.A.
Oakland, CA
It's been awhile since I looked at all the rules, but I believe she can
only use her W-2 wages from another employer to contribute (elective
contribution) via withholding to that EMPLOYER'S 401K plan, NOT her solo
401k. Contributions to her solo plan are in two flavors: 1. There is the
elective $17,500 ($23,500 if age 50) based on up to 100% of her net
earnings from self-employment and 2. the employer contribution which is
"effectively" 20% of her self-employment earnings. Elective
contributions are per person not per plan. In other words, the $17,500
is the maximum amount for the year even if she had her own business plan
and also a plan through her employer.

E.g., if she had net earnings in her business of $30,000, she could
contribute her elective amount of $17,500 to her solo and then make the
calculation to compute her employer contribution to the solo (20% of
$30K). If she had no net earnings for the year in her business, she
could not make any contributions to her solo plan. She could make
elective contributions to her other employer's plan via payroll withholding.
 

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