The solo 401K is opened for one business with profit taxed as sole proprietorship. The other business has two owners (myself and my friend (not spouse)) is taxed as LLC partnership. This LLC-partnership has loss
If you have a net loss from your self-employed income, you would not be eligible to contribute. The IRS rules state that you are allowed to contribute a maximum of 25% of your profit from net earnings from self-employment income.
The allowable deduction is based on your self-employment tax. If you have a net loss there would be no self-employment tax and therefore no basis to calculate your deduction.
For more information please see the link below.
[Edited 2.12.19, 2:41pm EST]
Unfortunately, that first response is incorrect. You can contribute the annual limit as an employee contribution. The emploYER contribution must come from profits and is max of 25% of profits.
The total solo 401(k) contribution limit is up to $61,000 in 2022 and $66,000 in 2023. There is a catch-up contribution of an extra $6,500 for those 50 or older in 2022 and $7,500 in 2023.
To understand solo 401(k) contribution rules, you want to think of yourself as two people: an employer (of yourself) and an employee (yes, also of yourself). Within that overall $61,000 contribution limit in 2022 and $66,000 in 2023, your contributions are subject to additional limits in each role:
As the employee, you can contribute up to $20,500 in 2022, $22,500 in 2023, or 100% of compensation, whichever is less. Those 50 or older get to contribute an additional $6,500 here in 2022 and $7,500 in 2023.
As the employer, you can make an additional profit-sharing contribution of up to 25% of your compensation or net self-employment income, which is your net profit less half your self-employment tax and the plan contributions you made for yourself. The limit on compensation that can be used to factor your contribution is $305,000 in 2022 and $330,000 in 2023
Keep in mind that if you’re side-gigging, employee 401(k) limits apply by person, rather than by plan. That means if you’re also participating in a 401(k) at your day job, the limit applies to contributions across all plans, not each individual plan.
source: https://www.nerdwallet.com/article/investing/what-is-a-solo-401k
The respondents above are correct. You can verify the rules and numbers each year with the IRS in Retirement plan contributions.
@tastsmith wrote:Unfortunately, that first response is incorrect. You can contribute the annual limit as an employee contribution. The emploYER contribution must come from profits and is max of 25% of profits.
You can contribute the annual limit as an employee UP TO the employee income. If there is no profit, no contribution would be allowed.