Question on Individual 401k and Traditional IRA

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jafcorrea
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Question on Individual 401k and Traditional IRA

Post by jafcorrea » Tue Dec 27, 2016 6:03 pm

friend ask me ... can a person make contribution to:
Individual 401k - 18k and Traditional IRA - 5.5k = $23,500.00 before April 2017 as a 2016 contribution?

she did not contribute at all in 2016
Thanks JC

DSInvestor
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Re: Question on Individual 401k and Traditional IRA

Post by DSInvestor » Tue Dec 27, 2016 6:07 pm

jafcorrea wrote:friend ask me ... can a person make contribution to:
Individual 401k - 18k and Traditional IRA - 5.5k = $23,500.00 before April 2017 as a 2016 contribution?

she did not contribute at all in 2016
Traditional IRA/ROth IRA contributions for 2016 can be made up until April 18, 2017 (tax filing deadline).

If she is a sole proprietor filing schedules C/SE, then she has until tax filing deadline to make both employee and employer contribution to Solo 401k.

If she is an S-Corp, her employee salary deferral must be withheld her 2016 paychecks by 12/31/2016. The employer profit share can be made after year end.

Assuming she has sufficient compensation, SOlo 401k allows for more than 18K in contributions. 18K is the employee salary deferral limit and can be up to 100% of compensation. A 6K catchup contribution is allowed if she is age 50 or over. Employer contributions can be up to ~20% of schedule C net business income or 25% of S-Corp W-2 wages.
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jafcorrea
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Re: Question on Individual 401k and Traditional IRA

Post by jafcorrea » Tue Dec 27, 2016 6:16 pm

DSInvestor wrote:
jafcorrea wrote:friend ask me ... can a person make contribution to:
Individual 401k - 18k and Traditional IRA - 5.5k = $23,500.00 before April 2017 as a 2016 contribution?

she did not contribute at all in 2016
Traditional IRA/ROth IRA contributions for 2016 can be made up until April 18, 2017 (tax filing deadline).

If she is a sole proprietor filing schedules C/SE, then she has until tax filing deadline to make both employee and employer contribution to Solo 401k.

If she is an S-Corp, her employee salary deferral must be withheld her 2016 paychecks by 12/31/2016. The employer profit share can be made after year end.

Assuming she has sufficient compensation, SOlo 401k allows for more than 18K in contributions. 18K is the employee salary deferral limit and can be up to 100% of compensation. A 6K catchup contribution is allowed if she is age 50 or over. Employer contributions can be up to ~20% of schedule C net business income or 25% of S-Corp W-2 wages. .... she is a realtor 2016 income $105k , so she can do 18k (employee contribution ) on solo 401k and 5.5 on TIRA :confused
Thanks JC

DSInvestor
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Re: Question on Individual 401k and Traditional IRA

Post by DSInvestor » Tue Dec 27, 2016 6:25 pm

jafcorrea wrote:she is a realtor 2016 income $105k , so she can do 18k (employee contribution ) on solo 401k and 5.5 on TIRA :confused
If I assume 105K of schedule C net business income, she may be able to contribute 18K employee salary deferral and ~20K employer profit share to Solo 401k plus 5.5K to IRA. If sole proprietor the deadline for all three contributions for 2017 is 04/18/2017.
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jafcorrea
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Re: Question on Individual 401k and Traditional IRA

Post by jafcorrea » Tue Dec 27, 2016 6:30 pm

DSInvestor wrote:
jafcorrea wrote:she is a realtor 2016 income $105k , so she can do 18k (employee contribution ) on solo 401k and 5.5 on TIRA :confused
If I assume 105K of schedule C net business income, she may be able to contribute 18K employee salary deferral and ~20K employer profit share to Solo 401k plus 5.5K to IRA. If sole proprietor the deadline for all three contributions for 2017 is 04/18/2017..... 105K gross 2016 income
Thanks JC

DSInvestor
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Re: Question on Individual 401k and Traditional IRA

Post by DSInvestor » Tue Dec 27, 2016 6:33 pm

jafcorrea wrote:
DSInvestor wrote:
jafcorrea wrote:she is a realtor 2016 income $105k , so she can do 18k (employee contribution ) on solo 401k and 5.5 on TIRA :confused
If I assume 105K of schedule C net business income, she may be able to contribute 18K employee salary deferral and ~20K employer profit share to Solo 401k plus 5.5K to IRA. If sole proprietor the deadline for all three contributions for 2017 is 04/18/2017..... 105K gross 2016 income
Once she finds out her net business income, she can contribute 18K employee profit share, plus ~20% of net business income as employer profit share plus 5.5K to IRA.
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jafcorrea
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Re: Question on Individual 401k and Traditional IRA

Post by jafcorrea » Tue Dec 27, 2016 6:41 pm

DSInvestor wrote:
jafcorrea wrote:
DSInvestor wrote:
jafcorrea wrote:she is a realtor 2016 income $105k , so she can do 18k (employee contribution ) on solo 401k and 5.5 on TIRA :confused
If I assume 105K of schedule C net business income, she may be able to contribute 18K employee salary deferral and ~20K employer profit share to Solo 401k plus 5.5K to IRA. If sole proprietor the deadline for all three contributions for 2017 is 04/18/2017..... 105K gross 2016 income
Once she finds out her net business income, she can contribute 18K employee profit share, plus ~20% of net business income as employer profit share plus 5.5K to IRA... so the contribution amount for solo 401k need to be equal or more of the net business income, but no more than 18k, right?
Thanks JC

DSInvestor
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Re: Question on Individual 401k and Traditional IRA

Post by DSInvestor » Tue Dec 27, 2016 6:45 pm

jafcorrea wrote:so the contribution amount for solo 401k need to be equal or more of the net business income, but no more than 18k, right?
Solo 401k allows for 2 types of contributions.
1. Employee salary deferral. up to 100% of compensation up to 18K. Add another 6K if over age 50.
2. Employer profit share. For sole proprietor, up to ~20% of net business income.

The sum of employee and employer profit share contributions cannot exceed 53K (59K if age 50+).

Solo 401k contributions cannot exceed your total compensation.
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jafcorrea
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Re: Question on Individual 401k and Traditional IRA

Post by jafcorrea » Tue Dec 27, 2016 6:56 pm

DSInvestor wrote:
jafcorrea wrote:so the contribution amount for solo 401k need to be equal or more of the net business income, but no more than 18k, right?
Solo 401k allows for 2 types of contributions.
1. Employee salary deferral. up to 100% of compensation up to 18K. Add another 6K if over age 50.
2. Employer profit share. For sole proprietor, up to ~20% of net business income.

The sum of employee and employer profit share contributions cannot exceed 53K (59K if age 50+).

Solo 401k contributions cannot exceed your total compensation. 401k - got it now , + she can do 5.5k to her TIRA?
Thanks JC

jane1
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Re: Question on Individual 401k and Traditional IRA

Post by jane1 » Tue Dec 27, 2016 10:02 pm

Note that i401k contribution deadline is mid-April tax deadline, but she needs to open the account before 12/31. There are several threads on Bogleheads about this (use search to get additional details).

Spirit Rider
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Re: Question on Individual 401k and Traditional IRA

Post by Spirit Rider » Wed Dec 28, 2016 12:28 am

You must open a one-participant 401k by 12/31 and make the employee deferral election also by 12/31. So she better get moving.

However, for the actual employee deferral and employer contributions, the deadline is your tax filing deadline (4/18/17) or if extension filed (10/16/17).

On a net self-employment income (net business profit - 1/2 SE tax) of $100,000, an $18,000 employee deferral and a $20,000 employer contribution would be possible.

IRA contributions must be made by your tax filing deadline (4/18/17), regardless if an extension is filed.

If you make a contribution to a one-participant 401k, you are consider to be an "active participant" of a retirement plan. This means for a single the deduction for a traditional IRA contribution starts to phase out with a MAGI at $61,000 and is gone at $71,000. However, Roth IRA contributions for a single don't start to phaseout until a MAGI of $117,000 and are gone at $132,000. If you are married these numbers change.

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