individual 401k

[summer123]

My client and his spouse are both the owners of a S corp, they want to make a contribution to individual 401k. The problem is the contribution was made under his spouse's name, but when I enter the amount in Proseries under his spouse's name, it does not deduct anything. So I try to enter the amount under his name, and it works. I am so confused, is there any difference between the contribution made toward taxpayer and spouse while both of them are the owner of the company?

[Just-Lisa-Now-]

Theyre employees of the SCorp right? 

They got should have received W2s and the 401K contribution would have been done through payroll.

[summer123]

Only the spouse is the employee. Yes, she received W2 but no 401K contribution shown on the W2. They told me they want to contribute "individual 401k" for small business, I think this plan is different from the traditional 401K? I am really confused.

[Just-Lisa-Now-]

Im not well versed enough in S-Corps to be of much help, sorry.

Seems like an employee would need their 401K contribution to go through payroll, but maybe Im wrong.

[Accountant-Man]

Since single 401k contributions are based on a percentage of earnings: no wages, no contribution.

The non employee spouse's k1 income is not earnings.

[sjrcpa]

Plan should be set up under the S Corp's name. As Daniel said, the contributions are based on wages. The S Corp deducts the employer contribution. Employee contribution had to be deferred out of wages, as Lisa said.

Your situation is No Go.

[qbteachmt]

"I think this plan is different from the traditional 401K? I am really confused."

If the husband also works for the business, they should both be on payroll. If he is only a Shareholder and does no work, then he gets no pay, and not being on payroll is fine. You didn't describe if he works for the business or not.

The reason this type of plan is different from a "regular" 401(k) plan is that there is no discrimination testing requirement if the entity has only the shareholder-employee, or that person + that person's spouse. Otherwise, you have comply with DOL testing to avoid favoring highly compensated employees.

Perhaps the spouse should have had a SEP IRA.