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dsouleles
Level 2

Recording Sole Prop LLC Solo 401K Contributions

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?

Solved
Best answer December 31, 2021

Best Answers
BigRedConsulting
Community Champion

Recording Sole Prop LLC Solo 401K Contributions

It's a draw, not a company expense.  Use an equity account to track the draw.

View solution in original post

6 Comments 6
Rustler
Level 15

Recording Sole Prop LLC Solo 401K Contributions

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

dsouleles
Level 2

Recording Sole Prop LLC Solo 401K Contributions

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.

 

BigRedConsulting
Community Champion

Recording Sole Prop LLC Solo 401K Contributions

It's a draw, not a company expense.  Use an equity account to track the draw.

dsouleles
Level 2

Recording Sole Prop LLC Solo 401K Contributions

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.

Eduardo Amaral
Level 1

Recording Sole Prop LLC Solo 401K Contributions

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

belh
Level 1

Recording Sole Prop LLC Solo 401K Contributions

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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