Maximizing Roth individual (solo) 401K contribution

[Delal]

For 2023, I want to maximize my ROTH individual 401k contribution (and not contribute at all to my regular individual 401k). Is the maximized contribution to a ROTH individual 401k the same amount as what the maximized contribution to a regular 401k would have been? (In other words, can I have TT calculate the maximized individual 401k contribution then go back, put zero for the 401k contribution and put that amount instead in the Roth 401k contribution box? I have read that there has been changes to the roth 401k accounts for 2023 so i'd like to double check. Thanks in advance.

[dmertz]

Is the maximized contribution to a ROTH individual 401k the same amount as what the maximized contribution to a regular 401k would have been?

Yes, but with regard to the employer contribution, it's not as simple as reporting it as a Roth contribution inTurboTax.

The change that the SECURE 2.0 Act made is that it is now possible for employer contributions to be a Roth contribution, but that's only if the plan permits, and apparently needs to be reported as a regular deductible employer contribution followed by an In-plan Roth Rollover with the IRR reportable on the tax return for the year in which the deposit is made.  The employer (you as self-employed) be required to generate the (2024 in this case) Form 1099-R required to report the IRR.  You'll want to discuss with your 401(k) trustee how to make Roth employer contributions if that's what you plan to do.

Yes, you can use the Maximize function to determine the permissible employee and employer contributions.

[Delal]

Thanks for your detailed answer. It is very helpful. I am now trying to figure out what my maximum eligible employee and employer contributions are (so I do not include the employer contribution into my ROTH 401k contribution, as my 401k trustee does not allow employer contributions to Roth 401k).
TT is giving me the maximum amount I am allowed to defer to my 401k plan but I cannot find a breakdown of the employer/employee contributions, even in the contribution worksheet.
I keep reading the maximum employer contribution is 25% of my net self-employment income (within the allowed limit) but I do remember the calculation is actually more complicated than that. Would you know where I can find out the formula? Or where I can find the breakdown in TT?
A last question: I'm over 50 so I could add the extra allowed contribution to my Roth 401k, right? Thanks in advance

[dmertz]

25% is the base rate, but because the employer contribution effectively reduces net earnings, the base rate must be adjusted.  The adjusted rate for a base rate of 25% is 20%.

Presumably you have more than sufficient compensation to maximize the employee Roth contribution, otherwise you wouldn't be worrying about the amount of the employer contribution, so you can enter the maximum permissible regular Roth contribution of $22,500 and, since you are over age 50, separately enter the $7,500 catch-up Roth contribution, then mark the Maximize box to allow TurboTax to calculate the permissible employer contribution.

[Delal]

Thank you very much for your reply. I actually probably do not have sufficient compensation to maximize the employee Roth contribution. I have a net income (from Schedule C) of 28,363. With an online calculator, I am getting the following maximum allowed contributions for my income:

• An employee contribution of $22,500 to Roth 401k
• An employer contribution of $1,929.61 to regular solo 401K. It is 20% of (business income ($28,363) minus the deduction for one half of my self-employment tax ($2,003.78))
• A catch-up contribution of $1,929.61 that I assume I can allocate to Roth 401K

Does it seem correct to you? TT tells me I can defer a maximum amount of $24,429 to a 401k plan. It does not tell me that I have excess contributions when I enter the above numbers:  (22,500 + 1,929) to Roth 401K and 1,929 to regular solo 401k. Thanks in advance.

[dmertz · Accepted solution]

Yes, I agree with your calculations.  (TurboTax rounds things to the nearest dollar, so it comes up with $1,930 for the employer contribution.)

Where TurboTax tells you that you can defer a maximum of $24,429, that refers to the employee contribution, the Roth contributions in your case.  The $1,930 of traditional employer contribution is what you are permitted in addition to the employee deferral, so your entries are correct.