I cannot find any literature from the IRS on whether contributions to a Solo 401k from an LLC taxed as an S Corp have to come from the businesses account or if they can come from a personal checking account. My accountant is saying one thing and my 401k provider is saying another. Anyone have a definitive answer here?
From the accountant:
Both liabilities show up on the corporation’s books and both need to be paid by the corporation. The contributions have to come from the Company because the Company has withheld the $18K from your pay checks and has the fiduciary duty to pay it to the 401K. The employer discretionary contribution has to be made by the employer. The due date for contributions is the due date of the tax return (S Corporation) plus extensions.
From 401K provider:
You can make the contributions from your business or personal checking account as long as the funds stem from self-employment income.
It does not matter where the funds flow from. Since you have an LLC taxes as an S-corp, both the employee and employer contributions will be based on your W-2 wages. Therefore, what matters is that you have the W-2 income to support the solo 401k contributions (both the employee and employer contributions).
Your accountant gave you pretty accurate guidance, the contributions are to be made from the corporate account.
Kyle, it's not a rocket science, just common sense accounting practices. Your company pays you salary, let's say it's $20,000. You make election to contribute $10,000 into 401k. Also let's assume that all taxes come out to $3,000.
The company would have to write 3 checks:
1. To you for $7,000
2. To government for tax liability $3,000
3. $10,000 to the 401k for contributions.
If you use a payroll company they would draw the corporate account for the entire amount and then distribute funds accordingly. But it is still the same concept. Your accountant pretty eloquently explained it to you already: the company has a fiduciary duty to deposit those funds into the 401k.
Regardless if it is a fiduciary duty the funds are still getting deposited into to the solo 401k account, just via a different route.
What matters is that the amount contributed is based on the correct figure of W-2 wages and that they are made by the business tax return due date plus any timely filed business tax return extension.
- If the entity type is an LLC taxed as an S-Corporation (calendar year), the annual solo 401k contribution deadline is March 15, or September 15 if tax return extension is filed.
@George Blower looks at this from the 401k angle. For the plan, it does not matter where the money comes from. The limitation is set by income, and after that limitation is set, the money can come from anywhere, as far as the plan is concerned.
However, that's a limited perspective. Your CPA and @Dmitriy Fomichenko have a broader look. The contributions have to come from corporate money in order to be deductible by the corporation. If they come from personal money - that contribution is not deductible, neither by the corporation nor by you.
Short answer: corporate.
Also, I do not understand why that question even matters. Transfer money from personal to corporate account - which has no tax consequences. Then pay from corporate account.
Salary deferral contributions should be taken and shown in LLC payroll and hopefully match 945s. LLC company "safe harbor and/or other contributions" should also come from the LLC so if the IRS audits you it is clear and matches the 5500 tax return and EIN. I make employee salary deferral contributions within days of payment. Company/employer contributions are made when taxes and books are confirmed to be accurate and total maximum amounts are verified by CPA and administrator.
Keep it straight forward and easy to follow the money.
Thank you for the answers everyone.
@Michael Plaks I was told that would be a loan to the company and then I would have to pay that money back.
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