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Learning, Sharing, and Teaching => Taxes => Topic started by: espyfamoffour on November 30, 2017, 01:53:03 PM

Title: How to contribute more than 18k to Individual 401k?
Post by: espyfamoffour on November 30, 2017, 01:53:03 PM

I'm a Business Analyst that works for a contracting company as a W2 employee, currently contributing the max to a 401k (18k for 2017). I'm looking to contribute ever more to a 401k by changing my status from a W-2 employee to a self employed 1099 contractor.

Looking for someone to confirm/poke holes in this scenario:

2017: 

• Not Self Employed, working as a W-2
  
• Gross Income: 80k W-2
  
• 401k contribution: 18k 
  
Net taxable Income: 80-18 = 62k

2018: 

• Self employed (incorporating as an S-Corp OR a Single Member LLC taxed as an S-Corp)
  
• Gross Income: 100k 1099
  
• S-corp/LLC pays myself as a W-2 employee 48k from profits
  
• As W-2 employee I contribute 18k from the 48k income to a 401k
  
• As S-corp/LLC employer, I contribute 25% of the 48k wages (12k) to the same 401k
  
• Total 401k Contribution = 30k
  

Net taxable W-2 income: 48k - 18k 401k contribution = 30k
Net Corporate Income: 100k gross - 48k wages - 12k employer 401k contribution = 40k


Can someone confirm this is a legit way to max out a 401k contribution? 

Title: Re: How to contribute more than 18k to Individual 401k?
Post by: bacchi on November 30, 2017, 03:15:51 PM

Your income ultimately comes from the same source and your W2 earned income goes from 80k to 48k with the remainder of your revenue becoming a distribution. It seems like an IRS computer will spit out a warning. Why would your work suddenly become less valuable?

It might work but it seems risky.

Title: Re: How to contribute more than 18k to Individual 401k?
Post by: walkwalkwalk on November 30, 2017, 08:10:53 PM

The point is you will still be an employee if you are in fact an employee. Therefore you could not be paid a 1099 since you are an employee.

Stop trying to scheme and finagle. It only wastes your time. And the irs time. And my time. And your accountants time. And your wife's time. I don't know about you but I can't owe ppl more time than I have.

Title: Re: How to contribute more than 18k to Individual 401k?
Post by: JLee on November 30, 2017, 08:20:37 PM

Changing between W-2 and 1099 without changing the employment situation is not likely to be legal.

http://www.ncsl.org/research/labor-and-employment/employee-misclassification-resources.aspx

Title: Re: How to contribute more than 18k to Individual 401k?
Post by: walkwalkwalk on November 30, 2017, 08:30:11 PM

Just do a roth IRA and be happy dude. Some ppl don't even have a 401k to contribute to so deem yourself lucky.

Title: Re: How to contribute more than 18k to Individual 401k?
Post by: JLee on November 30, 2017, 08:54:37 PM

Quote from: MMbergmann on November 30, 2017, 08:30:11 PM

Just do a roth IRA and be happy dude. Some ppl don't even have a 401k to contribute to so deem yourself lucky.

At $62k MAGI the OP can fully deduct a Traditional IRA, which I would likely select in this situation.