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    5 Replies Latest reply on Nov 11, 2017 8:52 AM by moderator_lee

    Constructive receipt and retirement contributions

    cgr Newbie

      I am a sole proprietor and my question relates to my i401k contributions.  Specifically, my question has to do with i401k salary deferrals and cash basis accounting "constructive receipt".  I have a custom plan document that allows for Roth and after-tax contributions as well.  It seems to me that the doctrine of constructive receipt makes it impossible to perform a salary deferral, i.e. of compensation "not yet received".  As a sole proprietor, I have constructive receipt the instant the check arrives.   The IRS is pretty clear in this wording in both cases.   How am I supposed to make my contributions?   I ask for clarification help because this will affect how and when I make my plan contributions.  Thanks!!

        • Re: Constructive receipt and retirement contributions
          moderator_lisa Pioneer

          Hello, and welcome to the community. We're glad you found us. While some of our members may have personal experience that will help you find answers, you might be best served by checking with your company's accountant and lawyer about the best solutions for your own situation. I did find a couple of previously published articles that might have some useful information in them.

           

          DIY Retirement Planning for the Self-Employed

           

          Retirement Tips for Small Business Owners


          Take a look around the forum, jump into any discussions that are relevant to you, and feel free to let us know more about yourself and your company at Introduce Yourself.  Be sure to acquaint yourself with the Community Guidelines  so your posts won't be removed for accidentally violating the rules.

           

          --Lisa

            • Re: Constructive receipt and retirement contributions
              cgr Newbie

              Lisa,

               

              Thanks so much for the response.  Checked out the links and, unfortunately, they didn't quite answer my question.  

               

              -Chris

                • Re: Constructive receipt and retirement contributions
                  moderator_lisa Pioneer

                  Hi Chris - You're welcome. We're happy you joined us here. I'm sorry those links didn't answer your question. Have you considered consulting an accountant?

                   

                  Does anyone else have any input or suggestions that might help Chris out?

                   

                  --Lisa

                    • Re: Constructive receipt and retirement contributions
                      cgr Newbie

                      Lisa,

                       

                      I did.  In fact, I asked 2 but received different answers from each . . . .and that's why I posted the question.   Thankfully, I was able to find another resource:  IRS..

                       

                      "Mary Anne Boyker of the IRS in Customer Service, ID3103130, "...for Sole proprietors, because of how the income flow works, they are not deemed to have received their entire income as of the last day of the year. So if the Solo 401k plan is setup in December, then they can still defer based on December 31st as being the date they earned it all ... Sole Proprietors don't receive a salary.  Any money withdrawn before year end is a "draw".  It follows, therefore, a "salary deferral" is not possible nor is compensation known until year end accounting has been completed."       

                       

                      So, it looks like I'm good to go and don't have to worry about this bit of funding technicalities.

                       

                      Thanks, C

                        • Re: Constructive receipt and retirement contributions
                          moderator_lee Tracker

                          Hi C,

                           

                          Really glad to hear that you got an answer, and especially appreciate your taking the time to share it with the community. It's these specific, complicated questions -- the kind where you can get two different answers from two different accountants! -- that help make a community great when you can teach us all a little bit more when the solution is shared. We hope you continue to post and that you also find much information that is helpful to you and your business as well.

                           

                          Lee