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I am an independent contractor with my own single-member LLC. I completed a lump-sum work contract in late 2021, invoiced the client at that time, but was not paid until January of 2022. I have a solo 401k with Vanguard, and when I went to the site to contribute part of my paycheck for the 2022 year I noticed the option for a 2021 contribution was still available as I had unused contribution space for that year. I had contributed 100% of my 2021 LLC income into the 401k.

I did some research and found some websites claiming that solo 401k contributions for the prior year can be made until the tax filing deadline (link). So I split my paycheck into both 2021 and 2022 contributions.

It wasn't until later that I considered (1) splitting contribution years from a single paycheck might not be allowed, and (2) contributing anything to the prior year from this paycheck might require that I file that entire paycheck as income in the prior year (undesirable). So here I am to ask:

Will I have to treat that January 2022 income as 2021 income, because I opted to contribute some of it to my solo 401k under the 2021 tax year? Is splitting a paycheck among multiple years in this way allowed? Should I fill out the 401k correction paperwork and send it to Vanguard to withdraw my 2021 401k contribution?

If it's relevant, I currently live in the state of Georgia and my LLC is incorporated there also.

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(1) splitting contribution years from a single paycheck might not be allowed

Correct. You can contribute from your net earnings to Solo 401k, which can only be determined after year end, which is why you can contribute past year boundary. But not from your paycheck. Is your LLC treated as corporation? Why do you have paychecks to begin with?

Will I have to treat that January 2022 income as 2021 income

Are you accrual-based or cash-based? Which year the income is is pretty deterministic, and if you're cash based it's 2022.

Should I fill out the 401k correction paperwork and send it to Vanguard to withdraw my 2021 401k contribution?

Maybe. I'd discuss this with your CPA. Do you have net earnings in your LLC in 2021 that you can use as the source of contribution?

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  • I'd appreciate downvoters to comment with their disagreements
    – littleadv
    Commented Jan 25, 2022 at 19:07
  • I’m a bit hazy on the distinction between paycheck and earnings. So I had to have contributed it from corp earnings, not my personal income? Unfortunately I have no more net earnings from 2021 I can use as this contribution.
    – ahelwer
    Commented Jan 26, 2022 at 14:29
  • @ahelwer if your llc is treates as corporation - then yes. if it is disregarded then there shouldn't be any paycheck.
    – littleadv
    Commented Jan 26, 2022 at 17:10

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