Scorp and solo 401k problem

[BHoffman]

SCorp sole shareholder with no employees has a solo 401k plan. She did not contribute anything to the plan until Jan 15, 2010 for year 2009. She contributed $16,500. Her 4th quarter payroll was only $12,000. I'm having trouble figuring out how to prepare the 4th quarter 941 since her Wages will be less than the amount of the 401k. Her total annual wages were $48,000.

I'm wondering if it would be okay to have an employee contribution amount of $12,000 and a company contribution of the remaining $4,500? I'm not very familiar with restrictions and rules regarding solo 401k plans.

Thanks for your help.

[geekgirldany]

Maybe her investment advisor can help her. I have a client with a Solo 401K and his investment person is always a phone call way with any questions I have.

I guess you could go back and amend 3rd Qtr and then put the rest on 4th Qtr?

[BHoffman]

Thanks Dany - I checked with her plan administrator and the entire amount was recorded as employer contribution, so I'm good to go!

[JCH]

Can't you just make the entire 16.5 an employer contribution and deduct on the sub-s? I don't see how you could make it an employee contribution for 2009 if she made it in 2010. S-corps have a provision to make an employer contribution after year-end.

[BHoffman]

JCH thanks for answering. Yes, the entire amount is employer contribution and will be deducted on the 1120S.

[New York Enrolled Agent]

JCH thanks for answering. Yes, the entire amount is employer contribution and will be deducted on the 1120S.

I was under the impression that the employer portion was limited to 25% of compensation.

[BHoffman]

NYEA - thank you very much for your response. I was also under that impression and stressed it to the plan administrator, but he said the 25% rule applied to both the salary AND the Scorp earnings. I'm not so sure about that. I have another call in to him regarding that issue. Would be grateful for your direction in whether that is true. As I said, I'm not experienced or knowledgeable in this area and will be slogging through research today.

[Gretel]

TTB states that total employer contributions are limited to 25% of combined wages for all participants before reducing wages for elective deferrals.

[Burke]

I think it can be 100% of earnings up to the max contr amt for the year for a Solo 401k.. (i.e, $16,500 under age 50 for 2009).

[New York Enrolled Agent]

NYEA - thank you very much for your response. I was also under that impression and stressed it to the plan administrator, but he said the 25% rule applied to both the salary AND the Scorp earnings. I'm not so sure about that. I have another call in to him regarding that issue. Would be grateful for your direction in whether that is true. As I said, I'm not experienced or knowledgeable in this area and will be slogging through research today.

Typically, the solo K is composed on two pieces - an elective deferral and a profit sharing portion. The profit sharing is limited to 25% of compensation by §404(a)(3)(A).

What you might be able to do is treat the $4,500 excess as an elective deferral. You indicated you were still working on the 4th quarter 941. Seems like this could be a legitimate solution.

[BHoffman]

Thank you for saving the day (yet again!)

I just spoke with Plan Administrator, and he said we can do exactly what you suggested.

With your help, a bullet has been dodged. Whew!