Need Confirmation On Maximizing Retirement Plan Contributions.

Aug 17, 2016 3 Replies
A

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?


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A

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?

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A

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).

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M

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:

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