1. Home
  2. Taxes General Forum
  3. Need Confirmation On Maximizing Retirement Plan Contributions.

Need Confirmation On Maximizing Retirement Plan Contributions.

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?

Reply to
Alan
Loading thread data ...

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?

Reply to
Alan

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).

Reply to
Alan

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.

This sort of explains it:

formatting link

Reply to
MTW

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.