Sunday, December 03, 2006

Dealing with employer 401k contribution limitations

As things stand, I expect to contribute only 45% of my eligible 401k salary deferal of $15,000 for tax year 2006 through my employer's 401k plan.

To fill the gap, I'll probably contribute the balance to my personally owned company's individual 401k plan.

This has several advantages and disadvantages:


  1. I may have to pay payroll tax on the salary deferal to my individual 401k - estimate about $1,200 - money that I wouldn't have to pay (or at least as much) through my employer's plan.
  2. I have to move money around to be able to do it.
  3. Yet another end of year financial activity competing with holiday time, etc....


  1. I'll have $8k or so not participating in the ridiculous retirement plan available at Big Company.
  2. The $8k will have a very large variety of investments available - especially low cost index funds.
  3. I'll have better financial reporting for the money invested outside of my company plan - including better integration with Quicken.

Anyone have any idea if a small C corp needs to make payroll tax contributions if 100% of the salary earned by the employer is deferred into an individual 401k?

Regards, makingourway


OwtoBahn said...

Is this a SIMPLE 401k or a Solo 401k? I assume a Solo one.

See or

I somehow didn't know about Solo 401k (or Individual 401k,etc) - Interesting

makingourway said...

It's a solo 401k aka individual 401k - depending upon the vendor. My corp that I own has individual 401ks for my wife and myself.

My new employer provides me with a traditional 401k.


makingourway said...

owtobahn - I checked out the links - they were great and very helpful. Certainly looks like I'll have to pay the FICA for my salary deferal component. Oh well. That's 15% to the government.

invest-faq looks particularly interesting as well.