Her maximum elective deferral is 25% of the $4K that she paid herself as compensation. --- Can you please confirm if the 25 % limit applies to the employee as well? Basesd off what I read is that the employer can't contribute more than 25% of the compenstaion paid to employee but the employee can contribute a max of 18 on her side.
From IRS site:
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Contribution limits in a one-participant 401(k) plan
The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:
Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
$18,000 in 2016 and 2017, or $24,000 in 2016 and 2017 if age 50 or over; plus
Employer nonelective contributions up to:
25% of compensation as defined by the plan, or
for self-employed individuals, see discussion below
If you’ve exceeded the limit for elective deferrals in your 401(k) plan, find out how to correct this mistake.
Total contributions to a participant’s account, not counting catch-up contributions for those age 50 and over, cannot exceed $54,000 (for 2017; $53,000 for 2016)
Example: Ben, age 51, earned $50,000 in W-2 wages from his S Corporation in 2016. He deferred $18,000 in regular elective deferrals plus $6,000 in catch-up contributions to the 401(k) plan. His business contributed 25% of his compensation to the plan, $12,500. Total contributions to the plan for 2016 were $36,500. This is the maximum that can be contributed to the plan for Ben for 2016.
A business owner who is also employed by a second company and participating in its 401(k) plan should bear in mind that his limits on elective deferrals are by person, not by plan. He must consider the limit for all elective deferrals he makes during a year.
