Question

Does 401k contributions reduce k-1 income also? Or W2 income? Or all taxable income

Forum|Forum|4 years ago
September 3, 2021
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Does 401k contributions reduce k-1 income also? Or W2 income? Or all taxable income.

Asking for someone who is a single member S-Corp who contributes to a Solo 401k. They also receive W2 income and k-1 distributions from the same S-Corp they own.

Not A Product Question

M

Mike9241

The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:

Elective deferrals up to 100% of compensation up to the annual contribution limit:
$19,500 in 2020 and 2021, or $26,000 in 2020 and 2021 if age 50 or over. these contributions reduce taxable wages on line 1 of w-2
Employer contributions up to 25% of compensation or if less the % defined by the plan. the employer contribution is a deduction on the S-Corp return. max for 2020 and 2021 is $37,500 (compensation for the max would have to be $150,000 - unreduced for their 401(k) contribution- or more)

so one way or another the taxpayer's adjusted gross income and taxable income are reduced by the full allowable 401(k) contribution