Electing Solo 401k Employee Contributions
If I have a solo 401k, I understand I’m required to “elect” employee contributions by 12/31. I then have until the due date of my tax return to make the employee + employer contributions to the plan. My questions is on the election of the employee contribution. What’s required to be considered a valid election? Do I have to state an actual dollar amount (meaning close the books, determine Sch C. profit, and do the calculation for max contribution by 12/31? Or, can I elect something to the effect of “the maximum amount allowed based on my Schedule C income for 2021”?
Permalink Submitted by Alan - IRA critic on Wed, 2021-09-22 20:26
You must state a dollar amount or % of compensation. Following is an example of Schwab’s solo K deferral election provision.
“3. Elective Deferral Agreement and Authorization I authorize the amount or percentage indicated below (select one) to be withheld from my pay for each pay period and contributed to my Schwab Individual 401(k) account: I elect to defer ________________% of my compensation per pay period. I elect to defer $_________________ of my compensation per pay period. I elect a one-time deferral of $_________________ of my compensation to be withheld as of _____________________________ (specify date). I request that this Elective Deferral Agreement will be effective beginning with the pay period that begins _____________________________ (specify date). It supersedes any previous Elective Deferral Agreement. This Agreement will continue to be effective while I am employed unless I change or terminate it as explained above. I acknowledge that I have read this entire Agreement and agree to its terms. Furthermore, I acknowledge that I must establish an Individual 401(k) account to receive any contributions made on my behalf under this Individual 401(k) Plan, and that I am responsible for directing Schwab concerning the investment of these funds. ”