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401k employer contribution greater than $36k ok?

Posted: Thu Apr 20, 2017 9:20 pm
by docnews
So I made a minor error and actually categorized a contribution to my vanguard solo 401k to make the employer amount to be $38k. If I only contribute $16k to the employee elective deferral and have sufficient income, will I be ok? If not, how do I go about recategorizng the $2k?

Re: 401k employer contribution greater than $36k ok?

Posted: Thu Apr 20, 2017 9:30 pm
by DSInvestor
If I assume 2016 tax year, the limit for solo 401k is 53K. If 2017 tax year, it is 54K. The sum of our employee and employer contributions to Solo 401k cannot exceed those limits. If you are age 50+, you have an extra 6K of employee catchup contribution. If your self employed income is sufficient to support 38K employer contribution, you can make 15K employee salary deferral contribution for 2016 to max out for 53K. This assumes that you're a sole proprietor where contribution deadline is tax filing deadline plus extensions. If S-Corp paying yourself W-2 salary, it's too late to make employee salary deferral contributions as those must be withheld from your paychecks during the year. In this case, you could make more employer contribution to hit the 53K max if your self employed income (S-Corp W-2 salary) is sufficient to support larger employer contribution.

Re: 401k employer contribution greater than $36k ok?

Posted: Thu Apr 20, 2017 9:45 pm
by docnews
Thanks for the reply! It's for 2017 and for a sole proprietorship (No s corp). So I think you are saying I'll be a okay.

Re: 401k employer contribution greater than $36k ok?

Posted: Thu Apr 20, 2017 9:56 pm
by DSInvestor
docnews wrote:Thanks for the reply! It's for 2017 and for a sole proprietorship (No s corp). So I think you are saying I'll be a okay.
Just make sure your net business income by year end will support the 38K employer profit share contribution or more. If your income drops off or you have high expenses to reduce your net income, you may find yourself in an excess contribution situation.

If you have a main job where you have a work place plan like a 401k that you max out for 18K, be aware that the 18K 401k employee deferral limit is shared across all 401k plans. If you max out 401k at your main job for 18K, you'd have no room for any employee salary deferral contributions to your Solo 401k.

Re: 401k employer contribution greater than $36k ok?

Posted: Thu Apr 20, 2017 10:13 pm
by docnews
Currently 1 job so no complication there. The income needed is a hard formula due to half of self employment taxes removed but should have more than enough to exceed it since I did (sans 2k extra) with 6 months of income last year. Thanks again.