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Can I pay to my own S-corp, then repay myself w/entire amount as a 401k contribution?

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  • Can I pay to my own S-corp, then repay myself w/entire amount as a 401k contribution?

    Hi all, I'm winding down my S-corp because of a job transition, so next year I will have zero income. My CPA recommended to keep it active for a few more years but that is irrelevant to this discussion.

    The previous set-up was working as an "independent contractor" and the physician group would pay me to my S-corp and then my S-corp would pay me/taxes/etc. My question is if I were to use my own money "pay" to my S-corp somehow, can I then have the S-corp pay me back the same amount, but have it all be a 401k contribution? Are there any taxes that would need to be paid? I used a calculator online to see what would happen if I, as the employee, deducted the entire paycheck and it looks like I would still have to pay the FICA/etc taxes as noted below. Can the employer make the contribution instead (nonelective contribution)? I'm not sure what taxes are involved.

    Lastly, my current employer allows after-tax contribution to a 401a, which I can rollover to my own Roth IRA. I think this is the same thing as what I wanted to do above but without all the unknowns. Ultimately, if I did not have this option, I'd like to know if I could do the above and the total fees associated with it (including fees for maintaining the S-corp). Thanks!

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  • #2
    “pay” is the key word here.
    Funds get transferred for what?
    You addressed the cash side of the transaction.
    When S-Corp receives the cash, looks like it’s a loan.
    When is S-Corp going to pay it back? Write it off?
    You also have the employer side of the pr/tax.
    You also have a paycheck with no FIT.
    You also need to remit the taxes to the IRS.
    You also have federal and state reporting.
    You also have “phantom income” on S-Corp and on your paycheck on your personal return.

    Maybe you are comfortable “cooking the books”,
    I wouldn’t touch it with a 10 foot pole. I use the word “phantom” because fraud would require intent. Clearly that was not the case. You wrote a check to cover the damages. All personal benefit with no business substance is not a good idea. Just a thought.

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    • #3
      No to the first part. That wouldn't be considered revenue. That'd be a capital contribution. The 2nd part is similar, but it's only Roth contributions. A megabackdoor Roth through the 401a.

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      • #4
        Originally posted by jhwkr542 View Post
        No to the first part. That wouldn't be considered revenue. That'd be a capital contribution. The 2nd part is similar, but it's only Roth contributions. A megabackdoor Roth through the 401a.
        Capital contribution for a legal entity that is potentially going out of business that by chance happens to be exactly the same amount and month as the retirement contribution in a tightly controlled S-Corp? If there was a paycheck coming, that is a completely different situation.
        You don’t make a capital contribution for a paycheck.The paycheck itself is a non-deductible expense, not ordinary and necessary.
        Return of capital would be fine, not paycheck.
        Shareholder loan or capital. S-Corp is a separate legal entity. They don’t qualify for retirement withholdings.

        Same result, no $19.5k.

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        • #5
          Originally posted by xilex View Post
          My question is if I were to use my own money "pay" to my S-corp somehow, can I then have the S-corp pay me back the same amount, but have it all be a 401k contribution?
          no

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          • #6
            No. This is not a good idea. Agree with the above, wouldn’t touch this with a 10 foot pole.

            You have a job, you’re making good money, no need to cause unnecessary problems for 19.5k. I would just keep the S Corp active for a few years while you settle in this new job.
            I agree with your accountant about keeping it open

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            • #7
              Different answer if the S-Corp was operating and simply in a temporary cash crunch insufficient to fund the annual contribution.
              Capital contributions and loans would be very acceptable. Same facts, different circumstances.

              I wrote this because I actually approved of creative thinking in problem solving. Very nice effort.

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              • #8
                Originally posted by Tim View Post
                Different answer if the S-Corp was operating and simply in a temporary cash crunch insufficient to fund the annual contribution.
                Capital contributions and loans would be very acceptable. Same facts, different circumstances.

                I wrote this because I actually approved of creative thinking in problem solving. Very nice effort.
                to clarify even if a capital contribution were made in this hypothetical, the Corp would still have to pay the employee wages, from which the deferral would be withheld.

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                • #9
                  Thanks guys, sounds like it's too sketchy and convoluted to work.

                  I'll have to stick with the after-tax contributions for now. The reason I'm looking for novel options to hoard away money is my workplace 401k (thru Fidelity) has inferior funds, and they only allow trading of ETFs/funds and not stocks in the brokeragelink account.

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