Solo 401k Match Question

[Guest BuffaloT]

Client has Self Employment Income of 35,235. She can defer 15,500 into a solo 401k plan. I understand she can also contribute a profit sharing contribution for 6,508 (35,235*.9235*20%). Can she still have a company match on her 15,500 contribution and how much can that be? Does that affect the Profit Sharing Contribution number?

[Kimberly S]

The formula that you describe appears to be the calculation for the maximum employer contribution (match plus profit sharing) that she can make, but it is missing a step. One half of the self employment tax must be deducted from the compensation.

[Guest BuffaloT]

The formula that you describe appears to be the calculation for the maximum employer contribution (match plus profit sharing) that she can make, but it is missing a step. One half of the self employment tax must be deducted from the compensation.

I reduced 35,235 amount by 92.35% (1.00- (15.3%*.5). That reduces the profit share amount to 32,540 multiplied by 20% Is that calculated correctly? If that is the max profit share available does that then exclude a salary deferral match?

[Bird]

Close, but when calculating SE tax you first take 92.35% of SEI, then multiply that by 15.3% for the tax. Then take of half of that for the deduction; you should get 32,746. Then 20% of that is 6,549.

That's the maximum (25%) employer contribution. If you do it all as profit sharing, then you have no room for a match. (You could combine match and profit sharing up to the limit but that would be silly.)

[Guest BuffaloT]

Close, but when calculating SE tax you first take 92.35% of SEI, then multiply that by 15.3% for the tax. Then take of half of that for the deduction; you should get 32,746. Then 20% of that is 6,549.

That's the maximum (25%) employer contribution. If you do it all as profit sharing, then you have no room for a match. (You could combine match and profit sharing up to the limit but that would be silly.)

Thanks for the help.

[Appleby]

Bear in mind too that Solo-401(k)s are usually not designed to permit matching contributions- only salary deferral and profit sharing .

If that is the case , then it may not be an issue