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Looking for advise on how to set up a 401(k) in qb on line- We are using an outside payroll company but recently started a 401(k) with employer match.
Here is payroll Math for any one paydate:
Gross wages + Employer taxes + Employer match = total Expense. There might be a processing fee, too, of course.
If there are any amounts the employer has to pay separately (child support, retirement) through banking that are not taken (impounded) by your Service provider, that's why a Liability account would be included, like this example:
Gross wages + Employer taxes + Employer match = total Expense. Then, any amount being held to pay later is Liability, reducing the banking for this paydate's total banking.
Example:
$1,000 gross wages + $200 employer taxes (pretend, for FICA, FUTA, etc) + the payroll processor fee of $10 = $1,210 for the Bank Check impounded by the payroll service. They will then pay taxes.
Or,
$1,000 gross wages + $200 employer taxes (pretend, for FICA, FUTA, etc) + the payroll processor fee of $10 minus $100 to Liability = $1,100 for the Bank Check impounded by the payroll service. Then, later, the Employer pays out the $100 from liability to the Retirement Broker. That = $1,200 total from banking, but one to the payroll service provider and one to the retirement broker, on separate dates.
So what are the categories you place on the chart of account for the Solo 401k? The client uses ADP to pay themself but the 401K is with ETrade. All contribution by employer are sent directly to ETrade from business bank account while the employee writes checks from their personal bank account for the employee contributions. So all I'm doing is posting the employer side on the business books. Independent of the payroll journal entry from ADP. I only have "401k Company Match" as a other current liability which is post to, is that right? The number is negative.
Let's review what "employee" contribution means: "while the employee writes checks from their personal bank account for the employee contributions."
That just completely bypassed all payroll reporting requirements. The person made a Personal Deposit, outside of Payroll, which is not allowed. That's supposed to be Deferred from Compensation, when you discuss the Employee Contribution. So, you just went to Personal, not as payroll.
There still is time to amend 20148 for everything this bypassed. You might need to meet with a CPA that deals with Retirement Plan administration, ASAP. The corporate tax return is due Mid-March, not Mid-April.
Here are some articles for reference:
https://www.goodfinancialcents.com/solo-401k-contribution-limits-rules-plans/
https://obliviousinvestor.com/solo-401k-contributions-employee-or-employer/
Wow, I'm glad I asked. I was in the room last year when their wealth manager and the person from the retirement fund gave them instructions and they followed them to the letter. So now I still have to understand the accounts to have on the chart of accounts to have the employee contribution when I sync the 3rd party payroll service to QBO and ones for the employer match side. I saw many answers to the calculation but not the categories needed to record it. Any help there? Thank you.
I have been a Plan Administrator. I sent an employee to set up a Self-directed Account for their SIMPLE IRA, since we had a plan that didn't limit you to only one Broker. He came back with the account info and stated he is ready for the limit of $X. I pointed out that the limit of $X means they set up the wrong Account Type for a SIMPLE IRA; the Brokers and wealth fund managers don't know Employer Plans. You have to read the Employer Plan Document and follow what it states. For this example:
If this is Employee Compensation Deferral, then right there in the terminology = Compensation (payroll) and Deferral (deducted from the paycheck at the time there is paycheck processing) and Reported on Payroll Forms and the W2.
Also, remember that the Employees are not supposed to be able to Touch the funds; they are not allowed to fund the Deferral Component outside of payroll, because that is their Own Money, already, and not Deferred from Gross Wages.
Lastly, when using an outsourced provider, the Employee Deferral is the same as the Tax withholdings = not more expense to the employer, but reducing what would have been the higher Takehome for the employee. You can read in this topic where I previously explained "payroll math."
Can you please provide what categories should be created for the 401K account? Employer and employee contributions?
Hey there, @ea4CDO.
Thanks for joining this conversation. Allow me to step in for a moment and share some information about the 401k retirement plan in QuickBooks Online (QBO).
Just to clarify, are you trying to set up the 401k retirement plan? If so, you can choose the Retirement Plans as the Category. Here's how:
1. Go to the Gear icon at the top, then pick Payroll Settings under Your Company column.
2. On the Payroll section, select Deductions / Contributions, then click Add a New Deduction/Contribution.
3. For Category, choose Retirement Plans and select the applicable retirement plan for the Type.
4. Enter the name, then OK.
For your reference, you can also check out this article for further guidance: Set up or change a retirement plan.
This should answer your concern. Please let me know how it goes or if you're referring to something else by leaving a comment. I'd be glad to answer if you have any additional questions. Take care and have a great weekend!
This was very helpful. Thank you!
I do not have QB payroll hoe do you do this if you dont have it
Hello, jennmartino .
Let me share some information about setting up 401k in QuickBooks Online.
You can enter it manually in QuickBooks. By entering journal entries you can track those 401k payments and keep your data in one account.
Here's to enter Journal Entry:
First, you need to create an account in the chart of accounts. By following steps to create a new account.
After creating an account and paying your employees outside QuickBooks, create a journal entry.
For future reference, read through this article to learn more about how to customize a report. To view and track your journal entries.
You can keep track of these journal entries from the reports tab. For future reference, read through this article to learn more about reports and how to customize them.
Let me know if you have additional questions with managing 401k. I'm one post away.
Is this explanation using Quickbooks payroll? If so, this question is asking how to set up using an outside payroll vendor. I'm still not clear on how to set up for an outside payroll vendor.
Hi there, @jwl4444.
The responses above work for users using outside payroll vendors. As suggested, you can track your payroll transactions as journal entries from the +New icon. You can add your employees manually following these steps:
Just in case you're planning to subscribe to our payroll services, you can use this link as your guide on how to complete your payroll setup: Get started with QuickBooks Online Payroll.
Additionally, here's how you can enter advance payroll in QBO: Set up a prior payroll for QuickBooks Online Payroll.
If you have any other payroll questions, let me know by adding a comment below. I'm more than happy to help. Keep safe!
Did you ever get a clear answer on this? I seem to be looking for the same thing. Outside payroll/retirement vendor. I just need to know what account to allocate our employer contributions. Liability? Expense? TYIA
I have the same questions.....How to post 401K employer contributions when NOT using Quickbooks Payroll?
I can share some information on how to post the 401k employer contribution, @Cheese Girl.
You can post the 401k contribution without QuickBooks Payroll by using a Journal entry. This way, you can track the payments for the employer contribution.
Here's how:
Upon sharing the steps above, I'd still suggest consulting your accountant. They can help and guide you on which account to debit and credit to ensure your accounts are accurate.
For more details about the steps above, click this article: Record payroll transactions manually.
I'm also adding this link that you can read to learn more about 401k and how to efficiently run your payroll:
Keep me in the loop by leaving a reply below if you need more help about 401k or with your payroll. I'll be here ready to assist you. Stay safe, @Cheese Girl.
This is ridiculous. Several people are asking simply how to set up the account in the chart of accounts, NOT how to create a JE. I have the same question but these answers are just not helpful. My client has employees. She uses an outside payroll vendor. She also uses an outside 401k vendor. I need to know where to put the transactions when they come through the bank feed -- is it a liability account? Why do you keep telling us how to build a watch when we're just asking what time it is???
I've been trying to find this answer as well. I ran across this PDF. Maybe this will help you.
https://fitsmallbusiness.com/wp-content/uploads/2018/02/Payroll-Chart-of-Accounts.pdf
You need three accounts in your chart of accounts:
1) Wage expense
2) 401K employer contribution (expense)
3) 401K payable (other current liability)
The proper journal entry for the employee's 401K contribution is a debit to wage expense and a credit to 401K payable other current liability account. The employer's portion is a debit to 401K employer contribution expense account and a credit to the same 401K payable other current liability account.
I was screaming inside myself. Seems like they don't want to help you use the product if you don't use only and all QBO products. I understood your question quite well and am looking for the same simple answers, for days now.
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