Discussion:Solo 401k - ER contrib exceeds limit
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Discussion Forum Index --> Tax Questions --> Solo 401k - ER contrib exceeds limit
| 1 July 2009 | |
| Client is a 100% percent owner of an S corporation, with 2007 W-2 earnings from the S corp of $82k. In 2007, he made employer contributions to his solo 401k plan of $39,750 exceeding the limit (25% of W2 Wages) by $19,250. He took a deduction on his 1120S for the $39,750 contribution.
He also maxed out his elective deferral in 2007 by contributing $15,500. Does anyone have experience with this? I think I need to do the following: • Amend the 2007 1120S to reduce the deduction. • File Form 5330 and pay 10% excise tax on the excess contributions for both 2007 and 2008. • Reduce the 2009 employer’s contributions by $19,250 to bring the contributions under the limit. Take he full deduction on the 2009 1120S. Any help would be appreciated. | |
| 2 July 2009 | |
| I thought excess contributions were also to be reported on form 1099R block 7 with a P. | |
| 2 July 2009 | |
| Wamark's conclusions sound good to me. I assume this is a one person plan. Also presumed is that 2008 compensation is $0. On the 5330 you'll fill out the section on nondeductible contributions, not excess contributions. The latter results from a failure of the nondiscrimination test.
To confirm your meaning regarding the 2009 deduction, I'll use an example: If your 2009 1120S deduction is $34,250, you're going to contribute $15,000 to the plan and absorb the $19,250 carried over from 2008, thereby eliminating any nondeductible amount. I don't immediately see the correction Rev Proc 2008-50 as being pertinent. Correction under the rev proc deals with qualification failures, meaning a failure of section 401(a) or 401(k) for example. I see no solid 401(a) issue, if there's any at all. The nondeductible contribution is an excise tax issue. These typically don't impact the plan's qualified status and typically are not covered by the correction rev proc. Jctmstx, there's no 1099-R since there's no distribution. If there had been a distribution, it would not be called an excess contribution. In limited circumstances, nondeductible contributions may be distributed, but I don't see a special code for this on the 1099-R. | |
| 4 July 2009 | |
| Thanks for the help guys. Marty I appreciate the confirmation.
On the 5330 you'll fill out the section on nondeductible contributions, not excess contributions. ==> Agreed. IRC Section 4972 excise tax. To confirm your meaning regarding the 2009 deduction, I'll use an example: If your 2009 1120S deduction is $34,250, you're going to contribute $15,000 to the plan and absorb the $19,250 carried over from 2008, thereby eliminating any nondeductible amount. ==> That is exactly what I meant. No need to withdrawal funds from the plan, just reduce contributions. Thanks again. | |
