Solo 401K
Client has Solo 401K. He is Scorp. He takes salary. He is under 50
Max contribution for 2021 is $58,000
(1) He wants to know can he do company poriton (Matching) without taking salary?
(2) Can he take some salary and do very little deferral. Can he then contribute rest (up to max allowed) as employer contribution?
Thanks!
Permalink Submitted by William Tuttle on Thu, 2021-09-30 23:28
Maximum employer contribution is 25% of compensation (W-2 wages)
See above and also maximum (employee + employer contribution) annual addition limit is the lessor of the statutory limit (2021 = $58K) or 25% of compensation.
Not to mention, an S-Corp 2% shareholder-employee must take reasonable compensation. There is a 100% penalty in addition to the FICA taxes not paid for the difference between reasonable compensation and unreasonably low compensation taken. See IRS fact sheet FS-2008-25. Since then the IRS and the courts have held that the most significant factor in determining reasonable compensation. Is what the 2% shareholder-employee would be paid by another employer based on their knowledge skills and experience. Bottom line, a 2% shareholder-employee doesn’t just get to arbitrarily decide what their salary is.