Current situation:
-I and my spouse both make max contributions ($19,500 each/year) to employer sponsored 401k.
-Both also have each IRA accounts and make max contribution.
-My spouse also has a small side job and makes 1099 based revenue which is more/less than $30,000 per year and the net income is mostly around $5,000 or so.
(sole-proprietor business and she is the only one employer/employee.)
We are considering to set up solo 401k for her side job and wondering how much can be contributed for the tax deferral benefit.
According to my research, profit sharing in solo 401k seems to be the only option for the additional tax deferral/saving since she already makes a max contribution to her current 401k.
I also tried with turbo tax, simulating with the last year's tax filing.
There is a click-box option to calculate the maximize contribution automatically in the middle of the retirement plan section, and it seems that it calculated the maximum contribution amount as the business net income less 1/2 of self-employment tax.
For example, if net income is $4,500 and 1/2 SE tax is 500, it gives $4,000 as the maximum contributable amount.
Can we open up the solo 401k account, calculate the maximum contributable amount with the turbo wax as the above when the net income and SE tax are available at the year end and contribute that amount to the profit sharing?
I also referred to the IRS website to get some idea, but I am not sure.
It looks almost similar to what Turbo tax calculated, except she doesn't have any plan contribution rate for this.
https://www.irs.gov/retirement-plans/self-employed-individuals-calculating-your-own-retirement-plan-...
Any advice and comment will be appreciated!
