1. Take a close look at your work hours for the year. If you worked less than 1,000 hours you may have not earned an accrued benefit for the year. This can substantially lower your minimum contribution.
2. If you’re an S corporation, take a look at your W-2. Remember that defined benefit plan contributions are largely driven by W-2 compensation. Your reasonable compensation may have been too high and you could possibly amend your W-2 to reduce your contribution.
3. Do not fund your 401(k). Remember that 401(k) deferrals and profit-sharing contributions are elective for solo plans. So you don’t have to contribute to the 401(k) if your cash flow is tight.
4. Delay your contribution. Remember that you have until Sept 15th of the following year to fund the amount. Your cash flow might improve in the future.
5. Review your plan formula. There is a chance that your pay credit formula in your plan was too high. It could be an error, so it is a good thing to double check.
6. Pay the penalty. The penalty for not making your minimum contribution is approximately 10% of the minimum amount.
Please reach out to us if you want to schedule a call to discuss.
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