I'm not an accountant to understand all of the differences between wages, income and earnings in this context, but the IRS specifically states that elective deferrals can be made up to 100% of compensation.
Why can't she elect to defer the full 11,500? Why does it have to get taxed the self employed tax before?
One Participant 401k Plans | Internal Revenue Service (irs.gov)
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:
- $23,000 in 2024 ($22,500 in 2023; $20,500 in 2022; $19,500 in 2020 and 2021), or $30,000 in 2023 ($27,000 in 2022; $26,000 in 2020 and 2021) 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.
