Single 401(k)s
I have a client that owns her own business, she is the only employee, and would like to contribute to a retirement plan stickily for the purposes of reducing her reportable income. She is married and her husband is the main bread winner, she has about $15k to $20k in reportable income and she would like to invest as much as possible. My understanding of the SEP-IRA laws investing in a SEP-IRA wouldn’t give her the tax reduction that she is looking for so I thought that a Single 401K would make more sense but I am not familiar with the program therefore I am looking for some guidance/advice.
Permalink Submitted by mk foss on Fri, 2013-02-15 02:50
The SEP allows a contribution of 25% of salary and can be established up until the extended due date of the tax return for the year of the deduction. The contribution limit is a little more complicated if the business owner is not incorporated.The solo 401(k) plan must be established before the business year end – one could be opened now for 2013 but not for 2012. The plan allows for a deferral and an employer profit sharing portion. The amount of the deferral that is allowed is based again on salary if the business is incorporated. Profit adjusted for half of SE tax is the starting point for deferrals if the business isn’t incorporated. It’s a lot of work to set up and administer with only $20k of income.
Permalink Submitted by Eric Woodfill on Sat, 2013-02-16 20:18
Thanks for your insight.