Will a late owner bonus increase our retirement contribution?
It may affect compensation used in the calculation, but the plan definition, payroll timing and employee consequences must be checked.
By AE Tax Advisors Team · Updated October 28, 2026
It may affect compensation used in the calculation, but the plan definition, payroll timing and employee consequences must be checked. A desired contribution should not be the only reason offered for the bonus amount.
A business-owner scenario
An owner wants to add a December bonus to increase retirement funding. The bookkeeper models only the owner's deduction, leaving out employer payroll taxes, employee allocation and compensation limits. Review the combined cost before authorizing wages.
Illustrative scenario, not a client result.
Work through the transaction
- Ask the administrator which compensation counts.
- Recompute employee and employer contributions.
- Include payroll costs and actual funding dates in the cash model.
The mistake that changes the result
A gross contribution increase is not the same as the owner's net after-tax benefit once associated costs are included.
Records that resolve the question
- Plan document.
- Payroll forecast.
- Employee census.
- Bonus approval.
The decision to document
Request a side-by-side bonus and no-bonus calculation from payroll, the plan administrator and the tax advisor. Confirm who must act before each cutoff so the proposed wage payment reaches the intended plan year.
Which fact changes the answer?
A plan can define eligible compensation differently from the figure an owner sees as take-home pay. Obtain the definition and calculation. The bonus decision should include any resulting obligations for employees, not only the owner's modeled contribution.
Explore owner retirement commitments advisory · Discuss your situation with AE Tax Advisors
Related owner questions
- My profit fell after I adopted a cash balance plan. Can I skip funding?
- My spouse and I each have outside 401(k)s. What can our business add?
Sources and scope
General educational information prepared with AI assistance. No individual professional review is represented. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.