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Forums Solo 401k Solo 401k Contributions LLC S-Corp net income question

  • LLC S-Corp net income question

    1 Reply
  • Giri G.

    Top SubjectSolo 401k Contributions
    Top ForumsSolo 401k Contributions

    Giri G.

    Giri G.

    Top SubjectSolo 401k Contributions

    June 5, 2022 at 12:36 pm

    Hi Team,

    I am trying to understand the “net income” for S-Corp (in case of opting for Solo 401(k).

    When we calculate “net income” of the S-Corp, do we take out “Profit sharing contribution 25%” as deduction?

    For example: Let us say I have “one member” S-Corp with 100K Gross income, I am trying to maximize

    Solo 401k

    Employer profit sharing contribution

    Voluntary after-tax contributions

    All of these “items” are dependent on “net income”, which means I need to deduct “all the expenses” to identify what would be “reasonable salary”. Seems like Chicken egg problem.

    Above 100K example, following 60/40 rule, if I take “salary” as 60k.

    Salary – $60,000

    7.5% of tax is one deductible – $4,500

    Other business expenses – $5,000

    401k employer contribution (25% of salary) – $15,000

    Around $85,000 is total,

    Which leaves $15,000. Now the confusion is, should I use this remaining amount ($15,000 – personal tax) to contribute towards “Voluntary after tax deduction” (or) I can contribute to “Voluntary after tax deduction” from the salary ($60,000 – personal tax)?

    Anything else I can fine tune in this so I can maximize contributions towards savings (Both pre-tax and after-tax). Appreciate your suggestions!

    Giri G.
  • George Blower

    Top SubjectSolo 401k,Solo 401k Contributions
    Top ForumsSolo 401k, Solo 401k Contributions

    George Blower

    George Blower

    Top SubjectSolo 401k,Solo 401k Contributions

    June 7, 2022 at 3:43 am

    For a self-employed business taxed as an S-corp, one’s ability to make all types of contributions (pre-tax, Roth and/or voluntary after-tax) is based on the w-2 wages from such S-corp.

    For example, one may make a voluntary after-tax contribution equal to 100% of the w-2 wages to exceed the overall limit (e.g. $61,000 for 2022) reduced by any employee or employer contributions made to the Solo 401k.

    See more: https://www.mysolo401k.net/solo-401k-contributions-mega-backdoor-solo-401k-guides/

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