S Corps, Solo 401(k)s and RMDs

Column distributed by Hearst Connecticut Media Group.

Links to resources referenced:

• One-participant 401(k) plans
• https://www.irs.gov/retirement-plans/one-participant-401k-plans   

• Related column excerpts:
  • “A solo 401(k) is a ‘traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse,’ quoting the IRS website.”
  • “Let me add a note on solo 401(k)s. A business owner ‘wears two hats in a 401(k) plan: employee and employer,’ quoting the IRS page. ‘Contributions can be made to the plan in both capacities.’”
  • “Those capacities include elective deferrals (with a limit of $23,000 in 2024, or $30,500 if age 50 or over), and employer nonelective contributions. However, the total contributions (not counting catch-up contributions for those 50 and over) can’t be more than $69,000 for 2024.”

• 26 USC Subtitle A, Chapter 1, Subchapter D: Deferred Compensation, Etc.
• https://uscode.house.gov/view.xhtml?path=/prelim@title26/subtitleA/chapter1/subchapterD&edition=prelim  
  • Related column excerpt:
    • “First, some background. Internal Revenue Code Section 401(a)(9)(C) sets out the rules for starting RMDs. The required beginning date (RBD) for employees to begin taking RMDs is ‘April 1 of the calendar year following the later of (I) the calendar year in which the employee attains applicable age, or (II) the calendar year in which the employee retires.’ That age is now 73, after the passage of SECURE Act 2.0 in 2022.”

• IRS Publication 575, Pension and Annuity Income

• https://www.irs.gov/pub/irs-pdf/p575.pdf
  • Related column excerpt:
    • “What defines a 5% owner? According to Pub. 575, ‘You are a 5% owner if, for the plan year ending in the calendar year in which you reach age 73, you own (or are considered to own under section 318 of the Internal Revenue Code) more than 5% of the outstanding stock (or more than 5% of the total voting power of all stock) of the employer, or more than 5% of the capital or profits interest in the employer.’”
• Retirement plan and IRA required minimum distributions FAQs
• https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs 
  • Related column excerpt:

• “Again, for anyone in this reader’s situation, consult your tax adviser. You don’t want to be assessed an IRS penalty for failing to take your RMDs in a timely manner (up to 25% of the amount not taken).”