Solo 401(k) Question

[CUSO]

Hi Team!  I have a quick Solo 401(k) Question. 

I have a client with an individually owned S-Corp and he is the only owner and employee.

My understanding is that the employEE can first make a employee contribution for up to $21,000 (in 2022) before year end.  My question is, is remaining employER contribution limited to 25% of his remaining wadges?  Or is it 25% or total business income?

For example, if the business makes $300,000 of gross income, the employee takes a salary of $100,000.  Is it that he can make an employee contribution of $21,000 and then take 25% of the remaining $79,000 or his wadges?  or is it 25% of his business net income?  

[TaxGuyBill]

If I remember correctly, neither.  I think it is 25% of $100,000.

[qbteachmt]

You'll want to confirm your figures every year:

https://www.irs.gov/retirement-plans/one-participant-401k-plans

For 2022, the (employEE) elective deferral limit is 100% of compensation to a max of $20,500; there is a catch up amount for someone over 50 years old = additional $6,500. The EmployER nonelective share is 25% of the compensation.

[abctax55 · Accepted solution]

"...his (my emphasis) business net income"  -   Your client doesn't *have* business net income. The Corp does. 

For an S-Corp, retirement plan contributions are based on compensation (aka W-2, aka subject to SE tax).    While the income/loss of the S-Corp does flow thru to the shareholder, it is not considered compensation and can't be used to compute a retirement plan contribution.