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Posted by Steve Pope on April 24, 2006, 11:14 am
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> I think using $10K at two places might be confusing you.
>
> So to start over - let's say I put away $10K in Simple-IRA
> at work, $4K from side business and another $12K from
> business as profit share.
>
> so, now - $10K is not involved at all since it is mentioned
> in W-2.
>
> However for the portion of side business - line 28 includes
> both 4K and 12K (it is my understanding that for a sole
> prop, one cannot deduct profit share as an expense unless it
> is for another employee). hence both amounts are added and
> included on line 28. does that sound right?
Yes.
> if yes, then how
> does the IRS make sure that I did not exceed $14K total
> contribution in a year?
The IRS knows the total amount you may contribute to a Solo
401(k) plan, based on the profit from your schedule C and
the details of your schedule SE, and upon any other elective
deferal plans for it has information reports, such as the
Simple-IRA you have with your employer.
So an IRS computer could, at least in some cases, flag
excessive amounts on line 28.
But I can think of cases where this is not true, for
example, if the self-employed qualified retirement plan was
a traditional 401(a) (formerly Keogh), instead of a solo
401(k), the IRS would seem to have no way of knowing this
from examining 1040 even though the allowed contributions
are (usually) less for the Keogh. It would pop up when they
eventually examine the plan itself (form 5500).
Steve
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