Overcontributed to Solo Roth 401k 2022, account value down 33%

[mrtk31]

So before I contact the administrator of the account I just am curious about how this works if I contributed $19,500 to my solo roth 401k and I need to remove it all because my modified adjusted gross income after doing taxes is close to zero.

The roth solo 401k account value has considerably less than $19,500 in it, lets say $13,000.

How do I remove the full $19,500 over contribution?

Thanks so much for any help

[dmertz]

There is no MAGI limit for making a Roth 401(k) contribution, so you might be mistaken about having made an excess contribution.  You would only have an excess Roth contribution to the solo 401(k) if you had insufficient net earnings from self-employment to support the contribution.  Nothing about this contribution is to be entered anywhere under Deductions & Credits.

But to answer your question, if the account lost 33% of its value between the time the $19,000 contribution was made and the time that the corrective distribution is made, the loss-adjusted amount that must be distributed to accomplish a return of the $19,500 contribution would be $13,000.

[mrtk31]

yes my net income is close to zero for the sake of this scenario so that's why I can't contribute the $19,500. I know it has nothing to do with deductions or altering my reported income as it is a roth 401k not traditional.

Thank you so much I was so worried I would have a negative balance or something and then have to fund that.

[dmertz]

I'm still questioning whether you have actually made an excess contribution or if you are just misusing terminology.  Your solo 401(k) contribution is based on net earnings, not your net income.  Net earnings are net profit from self-employment minus the deductible portion of self-employment taxes.  Are you saying that your net profit from self-employment is near zero?  (It's entirely possible to have net profit sufficient to make a $19,500 Roth 401(k) contribution and still have enough non-business deductions to bring your net income to near zero.  The non-business deductions have no effect on the amount that you are eligible to contribute to the Roth 401(k).)

[mrtk31]

I think I can guess the answer to this question.

if my MAGI is lets say $1,000 can I leave in $1,000 in the roth 401k and just remove the $12,000 of the $13,000 thats in the account? 

To sum it up, I contributed $19,500 but I'm only allowed to contribute $1,000. The account value has current value of $13,000 because the value decreased from the $19,500 contribution. I need to remove excess of $18,500 from an account that has a value of $13,000.

[dmertz]

If the account had just the $19,500 to begin with and the value of the account at the time of the distribution is $13,000, to accomplish a return of an $18,500 excess contribution the administrator will calculate the loss-adjusted amount to be distributed as $18,500 * $13,000 / $19,500 = $12,333.33.  All you should need to do is tell the administrator that you have a $18,500 excess contribution and they should do the rest, but make sure that they calculate the loss-adjusted amount correctly.

[mrtk31]

I don't know why I'm so dense sometimes, thank you so much I completely understand what I was doing wrong now.  And yes I was confusing my income with the business income earlier.

I was misusing the equation Net income = excess contribution X (ACB−AOB)/AOB but now I got it thanks to you.

Thank you so much!!!!
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[mrtk31]

but wait one last thing, I don't need to file the 1099-R because all of this was on the roth side of the solo 401k, I'm pretty sure that's correct?

I wouldn't know what to amend because the taxes are all still the same.

[dmertz]

The only thing that you would normally do is provide an explanation of the returned contribution to show that the amount distributed constituted the amount returned.  You are correct that it doesn't change anything on your tax return (except in the case where TurboTax allowed you Retirement Savings Contributions Credit for the excess contribution; TurboTax does not detect excess Roth 401(k) contributions).