I have a client who is self-employed and operates under a sole proprietorship. In 2018 before I met him he had been contributing to a SEP IRA in which he contributed $20,000. After we met and decided it was to his benefit to open an Individual K plan, we rolled the SEP IRA into the Individual K and started monthly employee deferrals of $2,041.66 between September & December of 2018 (4 months).
In May of 2019, he made a prior year Profit Sharing Contribution (for 2018) of $30,000. In total between his SEP IRA and Individual K he contributed $58,166.64 to his retirement plans for 2018's plan year. Since my client is over 50, he is eligible to defer $55,000 plus catch-up contributions of $6,000 for 2018. His 2018 taxable income is north of $300,000 so the $50,000 total in Profit Sharing contributions is allowed. My question is since he did not max out his employee deferral contributions at $18,500, is he eligible to contribute the additional $6,000 as catch-up provisions or is he limited to $55,000?
Since his contributions fell right in between $55,000 & $61,000 I can go either way on this and have received professional confirmation on both sides of the question.
Can you please help me make a case for keeping the money in the plan or reclassifying part of the prior year Employer contribution to 2019.
Thanks - Todd