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When is last day to make a contribution to my self employed 401k as an employer and employee for the tax year 2014?

I established my 401k in December 30 2014 as a self employed with no employee but myself. My income for 2014 was 102,000.00 Can I contribute the max amount for both employer and employee all at once before the tax deadline of 2015?

Feb 04, 2015 by james in  |  Flag
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401(k) plans can be designed to permit several different forms of contributions. Standard salary deferral contributions to the 401(k) plan can only be made during the plan year to which they are related. So if your plan was set up with a January 1, 2014 to December 31, 2014 plan year, then you would not be eligible to make 401(k) salary deferrals to the plan for 2014 since the tax year has ended. However, if your plan was set up with a discretionary profit sharing feature, you would be able to use that feature to make contributions to the plan for 2014. Profit sharing contibutions for the prior tax year may be funded to your plan up until your tax filing deadline, including extensions, if you want to take the tax deduction for the prior tax year.

I recommend that you talk with your retirement plan provider and go through your plan document and your corporate financials carefully to understand your options and the applicable contribution limits. Since you are self-employed, your corporation type (e.g., Sole Proprietor v. C-Corp v. LLC, etc.) can also have an impact on how profit sharing contributions and contribution limits are calculated and applied. You may have to deal with the earned income calculation which can have an impact on the amount you can fund to the plan.

Comment   |  Flag   |  Feb 04, 2015 from Houston, TX

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Peter Cacioppo Level 16

Your question is very, very surprising as when the plan was set up it would have been explained to you. The plan I use for my clients allow contributions until 4-15-2015 on plans set up in 2014. From my web site: If you are a “one” person company (spouse OK as an employee), we offer through Fidelity or T. Rowe Price a “Solo” or "Self-Employed" 401(k) that allows you to place up to $52,000 annually (if you make $175,000 net profit) into your 401(k)(& deduct the $52,000)($35,600 if you make $100M net profit, and can deduct the $35,600). You can add and deduct an additional $5,500 if you are age 50 or more. Fidelity and T. Rowe Price do not charge a set up fee, nor an annual fee. Individual securities can be purchased. If you have other employees, each needs to work 1,000 hours or less for you for your retirement plan to work as desired (you don’t cover the employees!). These are special IRS cleared plans that combine a normal 401(k) with a “profit sharing” plan but are set up to act/administer as a normal 401(k). In your case I would have to calculate but probably around 36M or 41M if age 55 would be what you could put in.

1 Comment   |  Flag   |  Feb 04, 2015 from La Jolla, CA
james

Hi peter thank you for your response. Apparently I'm not as knowledgeable in these matters as i should be but I am learning as much as i can. I set up my small business 401k on last minute notice with merrill edge in Dec 2014. Most of the process was online and they were able to set me up before the deadline of 2014 so that was my deciding factor in setting up my 401k with merrill edge. Now that I am ready to contribute money to my 401k I was not sure if i could only add my 401k contribution or also include the profit sharing contribution as well. But I see from your explanation that i can deduct both which comes close to the $35,600 figure you mentioned which makes sense.

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As I stated earlier, you cannot make your 401(k) salary deferral contribution at this point. Under Treasury Regulation 1.401(k)-1(a)(6), sole proprietor or partnership income is treated as becoming currently available to the person receiving the income on the last day of the sole proprietorship's or partnership's tax year. 401(k) elections cannot be made AFTER compensation becomes currently available. Therefore, you must make your deferral election no later than the last day of the sole propriateorship or partnership's taxable year in order for the 401(k) contribution to be an eligible contribution. Since most Sloe Proprietorships tax years are based on the calendar year, if you have not made the election by 12/31/14, you cannot contribute the $17,500 401(k) contribution for 2014. You can still make profit sharing contribution. While I agree that Solo Ks are special plans, I cannot find anything in the Treasury Regulations that would override the rules under 1.401(k)-1(a)(6) (but I am open to anyone who cite something specific for me). James, I would strongly suggest you speak with an experienced tax professional before proceeding to make a 401(k) contribution for 2014.

1 Comment   |  Flag   |  Feb 04, 2015 from Houston, TX
james

Thank you Robert. I was waiting for a response like this. I did read some articles online that stated what you said and others that were not so clear that is why i asked my question on this forum. I will call my plan provider and see what advice they can give me which they will probably tell me to seek counsel from a tax professional which is the best idea. Well if anything i can still make the profit sharing contribution only and use that as a deduction for the 2014 tax year correct?

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Are you sure you have a 401K? A very popular tax qualified plan among self employed individuals is a SEP-IRA. The contribution must be made by the tax filing deadline including extensions for the business return. You may contribute up to 25% of your compensation but no more than $52,000 for 2014 . Whatever percentage of your compensation you decide to contribute to your own account, you must also contribute the same percentage to accounts for your employees

2 Comments   |  Flag   |  Feb 04, 2015 from Fort Washington, PA
james

Hi john, yes i have a small business self directed 401k I established with merrill edge in Dec 2014. Since i haven't been contributing to my plan i wanted to make my maximum contribution next month. My confusion is because it appears one can make contributions in two different ways as self employed 401K plan as employee and employer which I am both. I did look into the SEP-IRA but I read that solo 401K has more benefits in the ability of being able to contribute larger amounts yearly if Im not mistaken.

Flag |  Feb 04, 2015
John R. Myers, CFP®

You are correct about the higher contribution limits on a Solo 401K. As for contributing as an employer or employee, you can do both. Here's a link to the IRS webpage that addresses this problem (actually in a more straightforward way than many IRS pages!)
http://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans

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Flag |  Feb 05, 2015 near Fort Washington, PA

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