Self Employed Safe Harbor 401(k) - NEC Allocation

[Guest Robin S. Vatalaro]

Hypothetical $50,000 of net earnings from SE for owner, and $25,000 comp for employee. Those two people comprise the entire eligible population. Plan doc grants NEC to HCE's.

Employee is easy 3% X $25,000 = $750

Owner?

.03 / 1.03 X $50,000 = $1,456.30

Is that right (e.g. we don't just multiply 3% X net earnings from SE - right?)?

Thanks for any help.

[Archimage]

You forgot a couple of things.

1. You have to subtract the contribution of 750 from 50,000 which gives you net earnings from SE of 49,250.

2. You have to back out 1/2 of SE tax which is 3479 which gives you 45,771

3. Then you would multiply by .03/1.03 which gives you 1,333 and some change.

[austin3515]

Where did you get the 3,479 of 1/2 self employment? I tried to look it up but couldn't track it down.

[Lame Duck]

Self Employment Tax Calculation =

((Net Business Income * .9235)*.153)/2

49,250 *.9235 = 45,482.38 * .153 = 6958.80/2 = 3479.40

[austin3515]

Thanks!