401(K) S-corp employer profit sharing contribution limitation
I am a CPA. I have a client that has an S-corp. The S-Corp net income are $300,000 for 2013. He is the only employee with wages of $102,000. He has a 401k withholding through his W-2 of $10,200. Since he is the only employee is the maximum 401(k) profit sharing contribution rate of 25% based on 100% of his w-2 earnings or 25% of the aggregate W-2 earnings, which is just him. If the total qualified plan contribution cannot exceed 25% of the aggregate earnings does that mean that the profit sharing contribution cannot cannot be greater than 25% of his $102,000 in wages less his 401(k) deduction of $10,200.
Permalink Submitted by Martin Helmer on Tue, 2013-12-17 19:56
is 25 per cent of plan eligible employees total comp (usually total w-2s but use the plan’s definition.)as of 15 or so years ago, employee elective deferrals under 402(g) (the $10,200) don’t reduce that w-2 wage for deduction purposes and don’t count against the 25 per cent limit. Voila, the ‘solo-k’) is born. Employer profit-sharing limit for current case is. $25,500.If other employees were involved, it’s sometimes feasible to skew owner’s share so that it’s more than 25 percent. That’s ok as long as total plan is within 25 percent in the aggregate. …Example:Owner plus 2 other employees are in the plan. Owner A makes $100K, employee B makes 35K and employee C, $15K.Employer deduction limit is 25 percent of $150K. It’s possible using alternate allocation scenarios to give the owner a significantly higher percentage deduction than 25 percent Of his $100k wage.