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Need Confirmation On Maximizing Retirement Plan Contributions.
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Alan
Aug 17, 2016, 2:23:07 PM8/17/16
to
Sole employee (over the age of 50) of a professional service corporation
(C Corp.) with more than enough income, has the company contribute the
maximum of $53000 to a SEP-IRA. Corporation deducts the $53000 on its
return. Employee has the ability to generate self-employment income.
Individual generates $24326 of SE income. Opens a Solo 401K and makes
elective deferrals of $24000 ($18000 + $6000). There are no matching
employer contributions. Schedule C has Net Income of $24326. Schedule SE
tax = $651. 1040 has business income of $24,326, retirement plan
deduction of $24,000 and a deduction of $326 for 1/2 of SE tax.
Anything wrong with the above?
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(C Corp.) with more than enough income, has the company contribute the
maximum of $53000 to a SEP-IRA. Corporation deducts the $53000 on its
return. Employee has the ability to generate self-employment income.
Individual generates $24326 of SE income. Opens a Solo 401K and makes
elective deferrals of $24000 ($18000 + $6000). There are no matching
employer contributions. Schedule C has Net Income of $24326. Schedule SE
tax = $651. 1040 has business income of $24,326, retirement plan
deduction of $24,000 and a deduction of $326 for 1/2 of SE tax.
Anything wrong with the above?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
Alan
Aug 19, 2016, 3:25:57 PM8/19/16
to
On 8/17/16 11:22 AM, Alan wrote:
> Sole employee (over the age of 50) of a professional service corporation
> (C Corp.) with more than enough income, has the company contribute the
> maximum of $53000 to a SEP-IRA. Corporation deducts the $53000 on its
> return. Employee has the ability to generate self-employment income.
> Individual generates $24326 of SE income. Opens a Solo 401K and makes
> elective deferrals of $24000 ($18000 + $6000). There are no matching
> employer contributions. Schedule C has Net Income of $24326. Schedule SE
> tax = $651. 1040 has business income of $24,326, retirement plan
> deduction of $24,000 and a deduction of $326 for 1/2 of SE tax.
>
> Anything wrong with the above?
>
Haven't seen a reply yet... so let me state my concern. The $53,000
> Sole employee (over the age of 50) of a professional service corporation
> (C Corp.) with more than enough income, has the company contribute the
> maximum of $53000 to a SEP-IRA. Corporation deducts the $53000 on its
> return. Employee has the ability to generate self-employment income.
> Individual generates $24326 of SE income. Opens a Solo 401K and makes
> elective deferrals of $24000 ($18000 + $6000). There are no matching
> employer contributions. Schedule C has Net Income of $24326. Schedule SE
> tax = $651. 1040 has business income of $24,326, retirement plan
> deduction of $24,000 and a deduction of $326 for 1/2 of SE tax.
>
> Anything wrong with the above?
>
annual limitation is by employer. Related employers are treated as a
single employer under Section 414. My concern is that a single employee
PSC and a sole proprietorship owned by the same person will be treated
as a single employer under Sec. 414. Having already had the PSC
contribute $53,000 to a SEP-IRA, he would be precluded from contributing
anything to the Solo 401K other than the $6000 age-based catch-up deferral.
Right or wrong?
Alan
Aug 25, 2016, 8:19:49 PM8/25/16
to
On 8/19/16 12:24 PM, Alan wrote:
> On 8/17/16 11:22 AM, Alan wrote:
>> Sole employee (over the age of 50) of a professional service corporation
>> (C Corp.) with more than enough income, has the company contribute the
>> maximum of $53000 to a SEP-IRA. Corporation deducts the $53000 on its
>> return. Employee has the ability to generate self-employment income.
>> Individual generates $24326 of SE income. Opens a Solo 401K and makes
>> elective deferrals of $24000 ($18000 + $6000). There are no matching
>> employer contributions. Schedule C has Net Income of $24326. Schedule SE
>> tax = $651. 1040 has business income of $24,326, retirement plan
>> deduction of $24,000 and a deduction of $326 for 1/2 of SE tax.
>>
>> Anything wrong with the above?
>>
> Haven't seen a reply yet... so let me state my concern. The $53,000
> annual limitation is by employer. Related employers are treated as a
> single employer under Section 414. My concern is that a single employee
> PSC and a sole proprietorship owned by the same person will be treated
> as a single employer under Sec. 414. Having already had the PSC
> contribute $53,000 to a SEP-IRA, he would be precluded from contributing
> anything to the Solo 401K other than the $6000 age-based catch-up deferral.
> Right or wrong?
>
Hey folks.... there must be at least one of you that can confirm that
> On 8/17/16 11:22 AM, Alan wrote:
>> Sole employee (over the age of 50) of a professional service corporation
>> (C Corp.) with more than enough income, has the company contribute the
>> maximum of $53000 to a SEP-IRA. Corporation deducts the $53000 on its
>> return. Employee has the ability to generate self-employment income.
>> Individual generates $24326 of SE income. Opens a Solo 401K and makes
>> elective deferrals of $24000 ($18000 + $6000). There are no matching
>> employer contributions. Schedule C has Net Income of $24326. Schedule SE
>> tax = $651. 1040 has business income of $24,326, retirement plan
>> deduction of $24,000 and a deduction of $326 for 1/2 of SE tax.
>>
>> Anything wrong with the above?
>>
> Haven't seen a reply yet... so let me state my concern. The $53,000
> annual limitation is by employer. Related employers are treated as a
> single employer under Section 414. My concern is that a single employee
> PSC and a sole proprietorship owned by the same person will be treated
> as a single employer under Sec. 414. Having already had the PSC
> contribute $53,000 to a SEP-IRA, he would be precluded from contributing
> anything to the Solo 401K other than the $6000 age-based catch-up deferral.
> Right or wrong?
>
IRC Sec. 414 would prevent contributing more than the annual limit of
$53,000 (the age 50 $6000 elective deferral would still be allowed).
MTW
Aug 27, 2016, 10:15:35 AM8/27/16
to
On Thursday, August 25, 2016 at 5:19:49 PM UTC-7, Alan wrote:
> Hey folks.... there must be at least one of you that can confirm that
> IRC Sec. 414 would prevent contributing more than the annual limit of
> $53,000 (the age 50 $6000 elective deferral would still be allowed).
I'm no expert in this area. But I believe the answer would turn on whether the corporation and the Schedule C were deemed to be "related employers" (and without further research I would guess that they are). If so, then I believe the overall limit of $53,000 would apply.
> Hey folks.... there must be at least one of you that can confirm that
> IRC Sec. 414 would prevent contributing more than the annual limit of
> $53,000 (the age 50 $6000 elective deferral would still be allowed).
This sort of explains it:
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
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