If a Sole Proprietor is considered to not receive their income until the end of the year, can they still make employee salary deferral contributions before year end?
Yes, a self-employed sole proprietor may defer (contribute to the 401k plan) on cash advance payments made during the plan year and before earned income is finally determined. The cash advance payments must be based on the value of the self-employed individual’s services prior to the date of payment and must not exceed a reasonable estimate of earned income for the self-employed individual’s taxable year. In addition the self-employed individual must have made a cash or deferred election before amounts are withheld from the cash advance payments. Treas. Reg. Sec. 1.401(k)-1(a)(6)(iv).
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