2020 LLC and Roll Over Ira

[futurestrader39]

Hey,

In 2020 I started a business and made 50k after expenses.  I decided to roll over my old employee 401k into a roll over IRA, I would like to file the max contribution which would be $6,000 for me since im under 50. But will this be a deduction/write off? I was told that my roll over was a traditional IRA.

I wanted to open a solo 401k but since it is past the 1st of the year I cannot for 2020, my only other option would then be a SEP if I cannot deduct my IRA. My only issue with that is Ive read it might be hard to convert a SEP IRA into a solo 401k.  I have no plans to hire an employee and would rather farm any work out if needed and use it as a write off if I need help.

Any suggestions would be greatly appreciated 

Thank you,

[dmertz]

The deadline for establishing a solo 401(k) plan for 2020 has not yet passed.  Due to the changes in the tax code in the SECURE Act of 2019,  the deadline for establishing a solo 401(k) is now the due date of your tax return; IRS Pub 560 has not yet been updated for 2020 to reflect that change.  However, you will be limited to just the employer contribution for 2020 since the deadline for electing to make an elective deferral is still year-end.  The maximum employer contribution to the solo 401(k) would be the same as the maximum contribution to a SEP plan (which is also an employer contribution).

By contributing to a workplace retirement plan (either a SEP plan or a solo 401(k)), you are considered to be an active participant in a workplace retirement plan and whether or not you will be eligible to deduct a traditional IRA contribution will depend on your filing status and your modified AGI for the purpose.  TurboTax will automatically determine the permissible deduction when you enter a traditional IRA contribution.

https://www.irs.gov/retirement-plans/plan-participant-employee/2020-ira-contribution-and-deduction-l...

[futurestrader39]

Thank you for the very detailed information, would I be able to find out if this deduction to my IRA is possible before or after I make the deduction.  

Thanks again!

[dmertz]

When you enter a traditional IRA contribution into TurboTax, TurboTax will tell you how much of the contribution is deductible.  You'll need to make sure that you made all of the entries for income and and above-the-line deductions that go into determining your modified AGI since a change to your modified AGI after you have entered the traditional IRA contribution will cause TurboTax to automatically re-determine the amount of the contribution that is deductible.  TurboTax will present a summary of your retirement contributions when you are Done with entering Deductions & Credits and you continue forward, or you can examine Schedule 1 line 19 at any time to see how much of the contribution you entered is deductible.  You can always revisit the IRA contribution section if you decide change the amount that you indicated that you would be contributing to an IRA.