SOLO 401K and Profit Sharing Plan for Partnerships gets you a bigger deduction with less paid in payroll taxes! by Jeff Brooks

 To a client (changed their names for confidentiality reasons.

SOLO 401K and Profit Sharing Plan for Partnerships gets you a bigger deduction with less paid in payroll taxes!   Why are SOLO 401Ks used so infrequently for partnerships and sole proprietors?   Most CPAs are used to SOLO 401Ks being used for corporations.  Most of the literature out in the market place refers to corporations.  Here is an example of a Question and Answer format that I used to recently help one of our clients.

  1. You now have  the use of that Ken and Kathy LLC Partnership
  2.  A profit sharing plan in combo with a Solo 401K will be able to be used once you have the LLC partnership in place when you and Kathy start taking guaranteed payments. 
  3. For instance, if you both were paid $80K each in guaranteed payments, you could each get to make contributions of $29,600.  Ken, this assumes that you are not getting any 401K taken out of your paycheck at ABC Partnership. 
  4. Q.  Since the Solo 401K allows Kathy and me to get $17K each.  How did you get us up to $29,600 each? A. You have a profit sharing plan in addition to the Solo 401K that gives you the opportunity to get your another 20% of your guaranteed payments (after Solo 401K) has been taken.
  5. Q.  How much can I take out of the new LLC SOLO 401K  retirement plan contributions, if you had $12K taken out of your payroll and your law practice matches you with $5K?.    A.  $0.
  6. Q.  Although I cannot use the 401K of $17K out of Kathy and my new LLC, can I take any amount from a profit sharing plan? A: Yes.
  7. Q: How much  can I take in retirement plan A. $16K profit sharing plan and $0 401K deferral.

 Ken and Kathy, please let me know if you have any questions?

Be well!

Jeffrey Brooks, CPA, CFP, MBA

for JBrooks Wealth Advisors, PC

An Arizona CPA and CFP firm

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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Address: 4647 N 32nd Street, Suite B245
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Phone: 602-292-2009