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Characterization of profit sharing contributions

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  • Characterization of profit sharing contributions

    I am a member of a private group that uses a 401k/PSP to which I contribute the maximum $54,000 per year.  I also have a solo401k through a consulting business.  I would like to maximize the amount I can put away between the two.  Is it possible to characterize the entire $54,000 of PSP contributions as employer contributions so that I can contribute $18,000 plus 20% of my 1099 earnings?  Or am I looking at this the wrong way?

  • #2
    I am pretty sure not, assuming you have employees. If the employer portion / "profit sharing" calculation is anything like ours it depends on you making the "employee" contribution. I'm sure someone more knowledgeable about the safe harbor matching etc will chime in.

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    • #3
      I should have included this, but we have no employees other than partnership track docs, who are of course highly compensated employees.

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      • #4




        I am a member of a private group that uses a 401k/PSP to which I contribute the maximum $54,000 per year.  I also have a solo401k through a consulting business.  I would like to maximize the amount I can put away between the two.  Is it possible to characterize the entire $54,000 of PSP contributions as employer contributions so that I can contribute $18,000 plus 20% of my 1099 earnings?  Or am I looking at this the wrong way?
        Click to expand...


        It may be semantics, but unless your contributions are entirely made up of employee deferrals and/or after-tax contributions, some of that $54K in contributions would be made by the employer on your behalf and not entirely by you.

        With a 401k/PSP plan, you as the individual can not characterize contribution types, only the employer may do so. Now if the partners agree the plan could contribute the full annual limit (2017 = $54K) as an employer contribution.

        They could not prevent an individual partner from making an employee deferral, it would just make the amount of the employer contribution exceeding the annual limit a taxable distribution. It would not make sense if it was a traditional deferral, but if a partner wanted some tax diversification a Roth deferral could make sense.

        In your case, by the partnership choosing to make the full annual limit as an employer contribution, you would then be free to make an employee deferral up to the limit (2017 = $18K) and and employer contribution up to 20% of your self-employment income (net business profit - 1/2 SE tax).

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        • #5


          With a 401k/PSP plan, you as the individual can not characterize contribution types, only the employer may do so. Now if the partners agree the plan could contribute the full annual limit (2017 = $54K) as an employer contribution.
          Click to expand...


          Just to clarify further, the difficulty lies in the fact that all partners would be agreeing to have the partnership contribute the full $54k to all partners' 401k accounts, which may not be feasible for the entity. otoh, since the business has no employees, it might be a good suggestion, especially if other partners have unrelated businesses (and follow WCI).
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6




            I am a member of a private group that uses a 401k/PSP to which I contribute the maximum $54,000 per year.  I also have a solo401k through a consulting business.  I would like to maximize the amount I can put away between the two.  Is it possible to characterize the entire $54,000 of PSP contributions as employer contributions so that I can contribute $18,000 plus 20% of my 1099 earnings?  Or am I looking at this the wrong way?
            Click to expand...


            I spoke with one of my TPAs, and the answer is that it might be possible to have 100% profit sharing just for you without making any changes to the rest of the group if you only have HCE doctors as plan participants.  Your TPA should be able to help you with that, so I recommend contacting them directly.
            Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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