Solo 401K for S Corp?

[carpediem]

Hello. I own an S Corp, and I'm the sole W2 employee. I pay myself a reasonable salary through the payroll service I use. I plan to setup a Solo 401K (self directed), and have a few questions regarding this. A Solo 401K consists of two aspects: (1) an employee salary deferral, and (2) an employer profit sharing contribution (limited to 25% of employee's W2 salary for incorporated entities).

1. Can my employee salary deferrals begin BEFORE my "401K plan adoption date?" In other words, can I start my 401K employee salary deferrals NOW, even though it will take about 5-10 days for the company to setup & mail me the 401K plan paperwork? Also, can the "effective date" be set for January 1st of this year? In other words, is the Solo 401K "effective date" retroactive (like HRA plans are)?

2. Can I wait until year-end (Dec. 31st) to make the employer profit sharing contribution? Since the maximum employer profit sharing contribution is 25% of W2 pay, I'd like to see what my total W2 amount is, and then adjust accordingly. In other words, I'd prefer to make a lump-sum contribution at year-end (instead of smaller contributions w/ each paycheck). Is this acceptable?

[vangogh]

Welcome to the forum carpediem. I'm sorry no one's responded to your questions yet, and I'm afraid to say I'm not going to be much help since this is far from my area of expertise. However, I wanted to reply to help keep your thread active until someone who can answer better sees it.

You might have already seen this and it might not answer your questions, but I did find a PDF on the IRS.gov site with information about 401k plans for self-employed individuals (http://www.irs.gov/pub/irs-tege/forum08_401k.pdf)

[Evan]

These plans are not my specialty, so it'd be best to confirm with your plan administrator. But to my knowledge, NO deferrals cannot be made on compensation already paid. It also has an effect on your prior payroll tax returns, so I would not go down that path.

You're right, there is your employee salary deferral (up to 100% of compensation, or $17K in most cases, or $23K if you're over 50), and employer nonelective contribution up to 25% of compensation, but in total both of these cannot exceed $51K. If your salary is over $112K, that's when you potentially could run astray with exceeding this limit.

As for the employer profit sharing contribution, I *do* believe you can base that on the entire year's compensation. Again, check with your plan administrator.