S-Corporation Contribuiton to Self-Directed Solo 401k Question

QUESTION: I want to open Solo 401k to maximize my S Corp contribution to Solo 401k with about $230K annual revenue. Does this mean that I can contribute maximum $50K for pre-tax at 2012 (25% of the revenue)? 

ANSWER: The Solo 401k contribution for an S-Corp. is based on W-2 wages. Therefore, if your W-2 wages for tax year 2012 equal $230K, your maximum Solo 401k contribution for tax year 2012 is $50,000 plus an additional $5,500 if you are age 50 or older. Further, the maximum W-2 compensation that may be used for calculating your tax year 2012 self-directed Solo 401k contribution is $250,000.

Use our Solo401k contribution calculator to calculate your tax year 2012 Solo 401k contribution.  

QUESTION: Can I add my husband to the account for pre-tax now? My husband has his 401K from his Employer right now.

ANSWER: If your husband is also employed in some capacity through your S-Corp. and generating W-2 income through the S-Corporation, then he can also contribute to self-directed Solo 401k.  Read following blogs from our website for more information surrounding contributing to multiple 401k plans.

http://www.mysolo401k.net/blog-for-mysolo401k.html?entry=can-i-adopt-a-solo

http://www.mysolo401k.net/blog-for-mysolo401k.html?entry=i-have-few-questions-regarding

QUESTION:  Or can I add my husband to the account any time later?

ANSWER: You can add your spouse as a participant of the Solo 401k now or later at no additional charge.

QUESTION: So the S Corp is like the Sole proprietors. I cannot go with employer profit sharing contribution? I have $24K on my W2 annually, and I probably have another $80K~90K profits at 2012. What should I do with the profits to maximum the pre-tax contribution to Solo 401K?  Could the dividend or 1099 be part of the Income   to calculate the maximum contributions?

ANSWER: Solo 401k contributions are made up of two types, regardless of entity type.

Type 1: Salary Deferral Contribution: For tax year 2012, 100% of W-2 earnings not to exceed $17,000 or $22,500 if you are age 50 or older may be processed as a Solo 401k contribution.

Type 2: Profit Sharing Contribution: As outlined in Internal Revenue Code Section 401(a)(3) the amount of employer contributions a/k/a profit sharing contributions is limited to 25 percent of the compensation paid. As such, a profit sharing contribution up to 25% of W-2 earnings can be contributed into a Solo 401k. Put differently, in the case of company, the employer profit sharing contribution has to be based on the compensation paid by company not the overall profits earned by the company.

Check with your personal tax professional or accountant, but unless the $80k-90K of profits are converted to W-2 income, they may not be used to calculate your Solo 401k contribution