Author Topic: Self employed 401k question  (Read 2328 times)

Grande

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Self employed 401k question
« on: January 05, 2015, 01:29:30 PM »
Is there anyone out here that has good experience in self-employed 401k plans? My wife opened one for 2014. I'll be brief but my issue is that am trying to get hers maxed to the limit of 100% of income up to $17.5k.

I do understand one cannot go beyond the $17.5K for employee elected deferrals. This year she worked very little staying home with the baby. Her income was around $16K. However her taxable income is adjusted by her accountant so I will not know that adjusted figure until after her K1 is returned. I am in the position of guessing. Too low a guess we missed out on tax advantaged contributions, too high we have over contributed and may have to amend the tax return which is probably not a fun exercise.

Any advice?

EconMode

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Re: Self employed 401k question
« Reply #1 on: January 05, 2015, 02:00:31 PM »
I opened a solo 401k for my wife for the first time in 2014 as well.  I had the same questions regarding maximizing contributions vs over contributing.  In the end I used one of the online calculators (you can google for them) as a guide and erred on the side of under-contributing.  This to avoid the possibility of refiling later.   One item of note however is that for sole proprietorships it looks like the contribution deadline for employee deferrals was December 31st.  The employer contribution deadline is the tax filing deadline.  Here's an article: http://www.irafinancialgroup.com/solo-401k-contribution-deadline.php

dandarc

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Re: Self employed 401k question
« Reply #2 on: January 05, 2015, 02:45:33 PM »
http://www.irs.gov/Retirement-Plans/401(k)-Plan-Fix-It-Guide-Elective-deferrals-exceeded-Code-%C2%A7402(g)-limits-for-the-calendar-year-and-excesses-were-not-distributed

Excess contributions carry no penalty IF you catch it yourself and take care of it by the tax filing deadline.  I haven't been able to find the official deadlines for contributions at irs.gov.  However, here is a source that seems to indicate that the deadline for contributions (assuming she is a sole-proprieter or LLC taxed as a sole-proprieter) is your tax filing deadline:

http://www.individual401k.com/rules.html

Hope this helps.

dandarc

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Re: Self employed 401k question
« Reply #3 on: January 05, 2015, 02:54:44 PM »
http://www.irs.gov/pub/irs-tege/forum08_401k.pdf

Seems to indicate than an election must be in place by year end.

DavidAnnArbor

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Re: Self employed 401k question
« Reply #4 on: January 11, 2015, 06:11:30 PM »
" in the case of a sole proprietor, the employee deferral must be elected prior to the end of the year, but the contribution can actually be made up until the individualís tax return has been filed."
 
From the article:
http://www.solo401kexperts.com/wp/when-does-solo-401k-employee-contributions-need-to-be-made-for-the-self-employed/

Frugal Consumerist

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Re: Self employed 401k question
« Reply #5 on: January 12, 2015, 06:57:38 AM »
I opened a solo 401k for my wife for the first time in 2014 as well.  I had the same questions regarding maximizing contributions vs over contributing.  In the end I used one of the online calculators (you can google for them) as a guide and erred on the side of under-contributing.  This to avoid the possibility of refiling later.   One item of note however is that for sole proprietorships it looks like the contribution deadline for employee deferrals was December 31st.  The employer contribution deadline is the tax filing deadline.  Here's an article: http://www.irafinancialgroup.com/solo-401k-contribution-deadline.php

I also opened a solo 401k for my wife this December. I spoke with both my accountant and Fidelity (where the account is held) and both said that as a sole proprietor she has until April 15th to contribute the funds to the account, not December 31st.

DavidAnnArbor

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Re: Self employed 401k question
« Reply #6 on: January 12, 2015, 08:56:06 AM »
Yes I had the same exact experience as Frugal Consumerist.