Skip to main content
D
dsouleles
December 31, 2021
Solved

Recording Sole Prop LLC Solo 401K Contributions

  • December 31, 2021
  • 3 replies
  • 0 views

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?

    Best answer by BigRedConsulting

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

    3 replies

    Rustler
    Rustler
    December 31, 2021

    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

    D
    dsoulelesAuthor
    December 31, 2021

    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
    BigRedConsultingAnswer
    December 31, 2021

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

      D
      dsoulelesAuthor
      January 1, 2022

      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.

      B
      belh
      September 21, 2023

      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.

        L
        LogineticsLLC
        November 2, 2024

        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.

        S
        swhipps26
        January 9, 2025

        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

        Terms & ConditionsAccessibility statement