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Can I contribute 100% of income to 401k?

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  • Avatar E5797 
    Participant
    Status: Physician
    Posts: 64
    Joined: 01/31/2016

    I recently have changed jobs and won’t be eligible to join my new group’s 401k plan until 2020.

    For 2019, there are still some accounts receivable trickling in from my old group’s corporation, which will eventually close–probably later this year once the accounts receivable stop.  Previously, we had all contributed the maximum employee contribution to our 401k and the group contributed the remaining up to the max as profit sharing.  For 2019, since I am not eligible for my new group’s retirement plan, can I contribute everything I make from my old group to my old 401k?

    For example, if I were to receive $30,000 in 2019 from remaining accounts receivable, can I contribute all $30,000 to the 401k? Or would there be a lower limit?

    #197138 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1709
    Joined: 02/01/2016

    It depends on how your plan is structured for employer contributions. If allowed you could make an employee elective contribution of 100% of earned income up to $19K and up to 25% of your (earned income – employee elective contribution) / 2..k

    If your earned income (business profit – 1/2 SE tax) = $30K, your maximum employer contribution would be ($30K – $19K) / 2 = $5.5K. Your maximum total contribution = $19K + $5.5K = $24.5K. If you are > age 50 in 2019, you could make a catch-up contribution of $30K – $19K – $5.5K = $5.5K for a total of $30K.

    #197164 Reply
    Liked by jfoxcpacfp
    Avatar E5797 
    Participant
    Status: Physician
    Posts: 64
    Joined: 01/31/2016

    Since my former partners and I were (are) employees of the old corporation, would there a be a S.E. tax since we aren’t self employed but employed by the corporation?  Would there be any tax due? (Maybe there would the corporations share of the tax on the 19,000 employee contribution? Would there be tax due on the profit sharing?)

     

    I’m employed elsewhere so I will max out the SS/Medicare tax there.  One of my partners may not work elsewhere this year.

    #197165 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1709
    Joined: 02/01/2016

    My mistake, I missed the corporation part. I was thinking you were a partner in a partnership.

    You can make an employee elective contribution up to $19K and depending on your employer’s plan, up to 25% of your W-2 compensation.

    That would be $30K * 25% = $7.5K + $19K = $26.5K. If you will be >= age 50 this year you can make up to a $6K catch-up contribution, but your total contributions can not exceed your w-2 compensation.

    So technically if all this is true you could have $30K in contributions made on your behalf.

    #197204 Reply
    Liked by E5797
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 426
    Joined: 06/18/2018

    What do your retirement plan documents say? Are you still an employee of the corp? I suspect you aren’t, your just collecting severance/buyout winddown $. If your employment ended in 2018, you probably aren’t eligible for the 401k, but read your plan docs and see.

    #197233 Reply
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1465
    Joined: 01/08/2016

    Shoot…it seems your group structure did not weather the bureaucratic tsunami. Sorry to hear that, but glad that you’ve transitioned. Do you mind providing the post-mortem so that others can learn? (Probably better on the original thread.)

    #197243 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1709
    Joined: 02/01/2016

    What do your retirement plan documents say? Are you still an employee of the corp? I suspect you aren’t, your just collecting severance/buyout winddown $. If your employment ended in 2018, you probably aren’t eligible for the 401k, but read your plan docs and see.

    Click to expand…

    Excellent point, this was a case of me losing sight of the forest for the trees, but may not really matter.

    If the OP is no longer considered an employee. IRS regulations would not allow 401k contributions from non-employee compensation (1099-MISC Box 7).

    If that is the case, the OP could adopt a one-participant 401k and make contributions in the manner I suggested above when I was assuming he was a partner in a partnership. The OP may very well be better off with this paid on a 1099-MISC.

    #197259 Reply

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