Author Topic: Contributing to a Solo/Individual 401k - Help  (Read 2456 times)

L2invest

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Contributing to a Solo/Individual 401k - Help
« on: July 03, 2015, 07:10:12 PM »
Hi All.

New poster but long time reader here. I have a question specifically about making contributions to your solo 401k.  I have asked my payroll company and Charles Schwab (who hosts my solo 401k) and read everything I can online but am getting mixed answers.

Is this okay for me to do or not? Receive my direct deposit W2 income from my payroll company into my personal checking account. Then transfer that money from my personal checking account into my Schwab account. Then transfer it from my Schwab account to my Schwab 401k account.

I'm not sure if it's okay for me to receive the funds and then transfer them, or if they HAVE to go directly from the payroll company to Schwab.

Any help is greatly appreciated.

MDM

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Re: Contributing to a Solo/Individual 401k - Help
« Reply #1 on: July 03, 2015, 07:41:32 PM »
Are you discussing one of these: http://www.irs.gov/Retirement-Plans/One-Participant-401%28k%29-Plans - or something different?

bacchi

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Re: Contributing to a Solo/Individual 401k - Help
« Reply #2 on: July 03, 2015, 07:58:25 PM »
Your payroll company can't do a split ACH deposit?

A 401k contribution is a business expense and the business has to handle it. You and the business are separate entities.

Eta: You have an S-Corp, right?
« Last Edit: July 03, 2015, 11:36:35 PM by bacchi »

milliemchi

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Re: Contributing to a Solo/Individual 401k - Help
« Reply #3 on: July 03, 2015, 08:39:09 PM »
Individual 401 is for self-employment income.  If you refer to the W2s you issue to yourself through your business, then yes, you can move money to i401k.  If you are working for someone else, then you can contribute to that employer-sponsored 401k. If your employer doesn't offer any retirement options, then you use IRAs.

johnny847

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Re: Contributing to a Solo/Individual 401k - Help
« Reply #4 on: July 03, 2015, 08:48:35 PM »
Uh I've never done a solo 401k but I think the method you're proposing is going to cause some logistical problems (assuming you're making traditional contributions). If you had a 401k from some megacorp, then any traditional 401k contribution is deducted from your wages on your W-2. As in, if you earn $98k and you contribute $80k, megacorp reports $80k of wages on your W-2.

If you do it the way you just described, you're going to end up with say $80k of wages on your W-2, despite earning $80k and making $18k in traditional 401k contributions. And as far as I am aware, there is no way to report 401k contributions on your tax returns (somebody correct me if I am wrong on this - maybe you can do this on schedule C?)

milliemchi

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Re: Contributing to a Solo/Individual 401k - Help
« Reply #5 on: July 03, 2015, 09:15:29 PM »
It's always the employer who puts money into a 401, never the employee. When you have an individual 401k, such as when you're self-employed, you act as your own employer and can contribute earnings that you made through self-employment.  When you work for someone else, they contribute on your behalf, at the time of paying your salary, and that money goes into the plan they administer. What I'm saying is that both the employer and employee contributions are administratively done by the employer.

bacchi

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Re: Contributing to a Solo/Individual 401k - Help
« Reply #6 on: July 03, 2015, 11:35:11 PM »
If you do it the way you just described, you're going to end up with say $80k of wages on your W-2, despite earning $80k and making $18k in traditional 401k contributions. And as far as I am aware, there is no way to report 401k contributions on your tax returns (somebody correct me if I am wrong on this - maybe you can do this on schedule C?)

$98k, you mean, on the W-2?

Yeah, you're correct. This strategy would invalidate the entire point of the 401k because there would be regular taxes on the contributions. Eek.

johnny847

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Re: Contributing to a Solo/Individual 401k - Help
« Reply #7 on: July 04, 2015, 02:13:27 AM »
If you do it the way you just described, you're going to end up with say $80k of wages on your W-2, despite earning $80k and making $18k in traditional 401k contributions. And as far as I am aware, there is no way to report 401k contributions on your tax returns (somebody correct me if I am wrong on this - maybe you can do this on schedule C?)

$98k, you mean, on the W-2?

Yeah, you're correct. This strategy would invalidate the entire point of the 401k because there would be regular taxes on the contributions. Eek.
In my first example I mean $98k. When you contribute to a 401k it reduces the wages reported on the W2