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2021 401k contribution question

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  • 2021 401k contribution question

    Hey everyone,

    My wife has a PLLC where she is the only employee.
    She paid herself in mid January. With her first paycheck, she contributed all 19.5k into her solo401k for employee contribution.

    Is this okay?

    Her pay period is from Dec 15 to Jan 15. I only ask bc my first paycheck from my employer wouldn’t do it bc part of my first paycheck is from Dec 2020. I also work for a large institution, so maybe they are most strict?

    inwant to make sure we didn’t scree anything up with my wife contribution.

    hope this question makes sense. Thanks for your help.




  • #2
    https://www.irs.gov/faqs/small-busin...ome-expenses-5

    Your employer was incorrect. They denied payment in 2020.
    Her situation is different because she had control. The above only addresses the compensation issue.

    When paid is the guideline for employee deductions for plan contributions. She should be fine and you should not have been denied.

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    • #3
      Thanks.

      I think the link you sent is unrelated, but regardless, appreciate the insight.

      Comment


      • #4
        Individuals are automatically “cash basis” taxpayers, which means income they receive is taxed in the year in which it is received. Your employer is almost certainly also on the cash basis which means payments they make are not deductible until the check is cut. Same difference, but I agree with Tim that it appears you were improperly denied the ability to contribute on 2021 pay.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          Ok great. Thanks for the clarification​​​​​. I didn’t care about my employer. I was more concerned about screwing something up with my wife’s stuff.

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          • #6
            Originally posted by WorkforFIRE View Post
            Thanks.

            I think the link you sent is unrelated, but regardless, appreciate the insight.
            Sorry about the link, different post. Constructive receipt was the IRS topic. You did not have access to the Dec 2020 earnings, this the pay and deductions are all 2021 when paid.
            Her’s is different from a comp control standpoint. That doesn’t address the withholding contributions which is date paid.

            ”Constructive receipt. Income is constructively received when an amount is credited to your account or made available to you without restriction.” Your company was incorrect.
            https://www.irs.gov/publications/p538

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