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Join nowMy question is about how to properly account for contributions to a Solo 401K. I have searched other similar questions and the answers do not seem to apply to my situation. I have a sole proprietorship LLC (disregarded entity). I use QuickBooks Online (not QB Self Employed). I do not use payroll. I record personal withdrawals as owner equity. I have a Solo 401K that I just funded with a single lump sum check from the business bank account - including Employee and Employer contributions. My question is how I properly record the contribution to the Solo 401K. Is it entirely a transfer to owner equity or is the employer contribution recorded as a business expense?
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It's a draw, not a company expense. Use an equity account to track the draw.
I wish it were a simple answer, but it is not. This is the best explanation I have found
https://bcmadvisors.com/solo-401k-limits-sole-proprietor/
good luck
Thank you Rustler,
I had seen that post previously. It is about how to calculate your contribution and I think I understand that. My question is how to record it properly in QuickBooks. I guess what I'm asking is if any of the expense is a deductible business expense or if it is all owners equity. I would like a CPA or someone with knowledge of accounting for solo Solo 401Ks to comment.
It's a draw, not a company expense. Use an equity account to track the draw.
Awesome. Thank you so much. I did read on one of the IRS publications that Solo 401K contributions go on the 1040 rather than the schedule C, so that makes sense.
Hi, if I may come in and ask an extra question:
What kind of Equity account should I use?
When I add a new Equity account to my Chart of Accounts, none of the options on the dropdown seem to be the perfect one.
Thank you
There are 4 types of contributions you can make to Solo 401k: employee elective deferral, elective deferral catch up (50+), employee after tax, and Employer discretionary (ie profit sharing/match).
The first 3 above that say employee come out of your draws. I recommend creating a sub account to track the type and amount of employee contributions. There are IRS limits and rules for each.
The Employer discretionary (if your plan allows it) is a company expense. Recommend creating an Expense account "PSP Contributions" or similar. Employer Discretionay/Profit sharing expense is limited to 25% of your total draws for the year, up to the IRS max.
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