My 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.
Have you figured it out?
Following the above, I'm going to create an Expense account "PSP Contributions". But I think I need to use it in combination with a liability account because I want to accrue the amount based on 25% of my compensation, up to the IRS Max. Now that we're in November 2024, I know what my total amount will be. But I won't be able to fully fund it due to cash flow until Q1 of 2025. I already made a partial contribution. So I think there's going to be some Journal Entry gymnastics I need to do. Guidance appreciated.
I feel like I am in the same mess. I have a single member LLC so taxed as sole prop with a schedule C. the only member (not an employee so no w2 or paychecks) contributed the max to the 401k in December and we did the safe harbor match but I am unsure how to record this in quickbooks.
The member contribution to 401k.....business expense or equity?
the LLC match to 401k....business expense or equity?
Thanks
I have been working with a CPA. And I can't say I entirely understand all of it. But in order to get my end-of-year contribution to show on my balance sheet, he had me create an Other Current Liability account called Accrued Retirement Contribution. Before the end of last year, I posted my planned contribution to that account. Before March 15, 2025, I will be writing checks to that account. Not entirely sure what that's going to look like. I'll update this when I know.
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