SCENARIO: I am currently the only employee of my S corp and for 2012 had a SEP-IRA (self directed – checkbook LLC).
For 2013, I would like to move to a solo 401(k) and interested in finding
out the contribution – especially profit sharing (20% of net earned income for
sole proprietors/partners).
QUESTION: The main question I have on calculation for net earned
income is – Does this include my W-2 salary or is it before the salary?
For e.g. the gross revenue is $250,000
Admin & other expenses 15,000
W-2 Salary is 120,000
Is 20% of amount (net earned
income) 250,000 – 15,000 – 120,000 = 115,000 or is it 20% of
250,000 – 15,000 = 235,000?
Thanks,
Hector from Illinois
ANSWER:
One of the great things about calculating the contribution for a solo 401k plan when the sponsoring
company is a S-Corporation is that the IRS is specific on the solo 401k
contribution rules concerning an S-Corporation. Basically, the contribution is
based on W-2 income, period. Therefore,
once you know the W-2 figure, plug it in to our online Solo 401k contribution calculator and it will calculate both the
employee and employer profit sharing contribution for you.
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