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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 585
Experience:  10 years experience
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Got new client, client has a small PC of which no salary was

Customer Question

got new client,
client has a small PC of which no salary was paid to her. She had in place a small business 401K. Prior accountant had her put contribution into the 401K even though she had no salary(a no no). If this wasn't bad enough he never deducted them any tax return.In the end, over a three year period she put 45,000 in to a plan that she wasn't allowed to and never deducted it. Being she never got a deduction we would like to take it back out of the plan without tax or penalty or possible deduct it future years??
Submitted: 11 months ago.
Category: Tax
Expert:  Mark Taylor replied 11 months ago.

Hi my name is Mark. I am a CPA, I will be happy to help you with your questions.

Expert:  Mark Taylor replied 11 months ago.

How old is your client?

Customer: replied 11 months ago.
35, SOLE MEMBER OF A PC WHICH HAS THE PLAN
Expert:  Mark Taylor replied 11 months ago.

Was it deducted on her personal return?

Expert:  Mark Taylor replied 11 months ago.

If it is taken out as a distribution it is likely that a portion would be tax free. For instance, you mentioned that the total amount of her contributions during this time were $15,000. If she had other prior contributions or other retirement plans then a portion of the distribution would be taxable Let assume she has $30,000 in other plans. If this was the case then 2/3 of the distribution would be taxed and subject to the early distribution penalty.

Expert:  Mark Taylor replied 11 months ago.

The problem with taken the deduction is that she does not have the salary or earned income to support it. Did she have other sources of earned income during this time?