WWYD: Year-End 401k Funding

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Topic Author
MindTheGAAP
Posts: 297
Joined: Fri Jan 31, 2014 12:44 am

WWYD: Year-End 401k Funding

Post by MindTheGAAP » Wed Dec 28, 2016 9:53 am

Have a scenario that I'm looking for feedback on from the forum collective on the best path to take in these last few days of 2016... Any and all guidance/advice would be thoroughly welcome:
  • Changed from W-2 to 1099 status at beginning of Nov of this year - have opened a Solo 401k at Vanguard to receive these funds - whether it be employee or employer contributions;
  • Contributed approx. $7.5K in former employers 401k from Jan-Nov - have approx $10.5k add'l space as "employee" contribution between now and 12/31/2016;
  • We are building add'l cash reserves to have on-hand to cover periods between clients and to give us plenty of coverage for taxes (estimated and true-ups at year-end) - am allowing for about 33% tax rate based on my modeling out of income - due to safe habour rules there won't be a need to pay a Q4 ES Pymt;
  • Should be able to contribute approx. $6k into Solo 401k as the "employer" by 4/15
  • Maxed out Roth IRAs for wife and I this year
Considering we're looking to bump up the cash reserves, how much would you contribute between now and 12/31 (yes, 3 days from now)? For reference we're about 2/3 of our goal to have on-hand cash - we're thinking about $30k in a separate slush fund and then we'll likely use a brokerage account (taxable) - potentially Betterment - for any excess that we have.

Thank you in advance and I wish you a healthy and prosperous 2017!
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

Topic Author
MindTheGAAP
Posts: 297
Joined: Fri Jan 31, 2014 12:44 am

Re: WWYD: Year-End 401k Funding

Post by MindTheGAAP » Wed Dec 28, 2016 12:20 pm

Seem to be getting a decent number of views but no replies... If people would just say why they are refraining from sharing their opinion, that would be fantastic. Want to add value to the forum and not knowing why there is a lack of reply won't help that...
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

Spirit Rider
Posts: 10989
Joined: Fri Mar 02, 2007 2:39 pm

Re: WWYD: Year-End 401k Funding

Post by Spirit Rider » Wed Dec 28, 2016 12:46 pm

Are you taxed as a self-employed individual or as an S-Corp shareholder-employee? You may not need to be in such a hurry.

In both cases you must make an employee-deferral election by 12/31, but only an S-Corp shareholder-employee must have their employee deferral deducted with a pay date on or before 12/31. A self-employed individual has until their tax filing deadline (4/18/17) including extensions (10/17/17) to make their employee deferral.

An S-Corp has until their tax filing deadline (3/15/17) including extensions (9/15/17) to make their employer contribution. A self-employed individual has until their tax filing deadline (4/18/17) including extensions (10/17/17) to make their employer contribution.

Topic Author
MindTheGAAP
Posts: 297
Joined: Fri Jan 31, 2014 12:44 am

Re: WWYD: Year-End 401k Funding

Post by MindTheGAAP » Wed Dec 28, 2016 12:52 pm

Spirit Rider wrote:Are you taxed as a self-employed individual or as an S-Corp shareholder-employee? You may not need to be in such a hurry.

In both cases you must make an employee-deferral election by 12/31, but only an S-Corp shareholder-employee must have their employee deferral deducted with a pay date on or before 12/31. A self-employed individual has until their tax filing deadline (4/18/17) including extensions (10/17/17) to make their employee deferral.

An S-Corp has until their tax filing deadline (3/15/17) including extensions (9/15/17) to make their employer contribution. A self-employed individual has until their tax filing deadline (4/18/17) including extensions (10/17/17) to make their employer contribution.
Taxed entirely as a SE individual - I'm a CPA so I should know this stuff but I'm not on the tax side of things at all with the exception of filing my own stuff.

So I have to make an election... How does that practically play out? I have the Solo 401k setup - do I just need to defer some amount to get that going and then have until 4/15 (or 4/18 this year) to finalise the total amount?

Thank you SR for your reply!
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

Spirit Rider
Posts: 10989
Joined: Fri Mar 02, 2007 2:39 pm

Re: WWYD: Year-End 401k Funding

Post by Spirit Rider » Wed Dec 28, 2016 1:18 pm

A written employee deferral election is just that an election. No actual deposit is required until your tax filing deadline. This is very often also called a salary reduction agreement.

Many providers will provide a sample election/agreement form, but often limit it to a percentage or fixed amount per pay period. You can simply put the relevant information and make you own election on a sheet paper sign and date it and keep it for your records. That is all that is required. It is not filed with your return or provided to the IRS unless specifically requested.

In your case it could be something simple like this; "The maximum allowed deferral after accounting for all other deferrals."

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