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Lev, Tax Advisor
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Experience:  Taxes, Immigration, Labor Relations
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I am being audited by the IRS. I need to prove that I took

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I am being audited by the IRS. I need to prove that I took the correct amount for my SOLO 401K plan in 2010. This is NOT a simple 401K as it has a profit sharing component. I had an S-Corp and had 90,000 in W2 wages. I made an additional 89,000 in profit. Can you provide the computation for the IRS agent to substantiate my deduction?


Hi and welcome to Just Answer!
Only wages are considered to determine the limit on 401k contributions. Distributions you receive as a shareholder of an S corporation do not constitute earned income for retirement plan purposes
There are two parts of the contribution - an employee elective deferral and an employer's matching contribution.
The limit on the amount of elective salary deferrals in 2010 was $16500 - assuming there is no catch-up contribution and consider that is NOT a simple 401k plan.

In additional - the S-corporation as your employer can make matching or nonelective contributions to the plan based on your Form W-2 compensation as a common-law employee which is limited by 25% of your compensation - in your case $90,000 (from W2) * 25% = $22,500

So far - the total limit would be $16,500 + $22,500 = $39,000
There is another limit on overall defined contributions into all retirement plans - which in 2010 was $49,000 - but seems that limit doesn't affect your situation.

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