Problems entering Solo 401(k) for myself and spouse

[BertMerc]

My wife and I run an Airbnb under her name and are in the process of creating a Solo 401(k) for her.  We have no employees and are both over 50.  It is my understanding that the contribution limit is up to $58,000 in 2021 and that there is a catch-up contribution of an extra $6,500 for those 50 or older.  I'm having trouble entering these numbers in Turbo Tax.  Also, can I, as the spouse also contribute and how much?

[KrisD15]

Is this reported on Schedule C as Self-Employment income or some other business model?

According to the IRS:

"If you are self-employed (a sole proprietor or a working partner in a partnership or limited liability company), you must use a special rule to calculate retirement plan contributions for yourself. 

Retirement plan contributions are often calculated based on participant compensation. For example, you might decide to contribute 10% of each participant's compensation to your SEP plan. This formula works to determine employees' allocations, but your own contributions are more complicated. You can't simply multiply your net profit on Schedule C by 10%. 

You calculate self-employment (SE) tax using the amount of your net earnings from self-employment and following the instructions on Schedule SE, Self-Employment Tax. However, you must make adjustments to your net earnings from self-employment to arrive at the amount of "plan compensation" to use to determine the plan contribution/deduction for yourself.

Plan compensation for a self-employed individual

To calculate your plan compensation, you reduce your net earnings from self-employment by:

• the deductible portion of your SE tax from your Form 1040 return, Schedule 1, on the line for deductible part of self-employment tax, and
• the amount of your own (not your employees’) retirement plan contribution from your Form 1040 return, Schedule 1, on the line for self-employed SEP, SIMPLE, and qualified plans.

You use your plan compensation to calculate the amount of your own contribution/deduction. Note that your plan compensation and the amount of your own plan contribution/deduction depend on each other - to compute one, you need the other (this is a circular calculation). One way to do this is to use a reduced plan contribution rate. You can use the Table and Worksheets for the Self-Employed (Publication 560) to find the reduced plan contribution rate to calculate the plan contribution and deduction for yourself."

[BertMerc]

It is reported on Schedule C as Self-Employment income.  Where on Turbo Tax do I enter the contributions?

[GeorgeM777]

In TurboTax Home & Business desktop version, you enter your 401k contributions by following these steps:

1. In the Business main category, scroll down the page to Less Common Business Situations.  
2. Select Self-Employed Retirement

On the page in TurboTax where you will enter the amounts you have contributed to your respective 401k plans, TurboTax provides the following information regarding the amounts you can contribute:

• Limits on Contributions:
• Elective deferrals (contributions) to an Individual or Roth 401(k) plan must be coordinated with any other elective deferrals to ensure that the total does not exceed $19,500 ($26,000 if age 50 or older) for the year. Other elective deferrals include deferrals to employer provided retirement plans shown in Box 12 of Form W-2 and any contributions to a SIMPLE plan. Review all your elective deferrals for the year to be sure you have not exceeded the maximum.

You are correct in that if you are at least 50 years old, you can contribute an additional amount of $6,500 to each of your 401k plans. 

If you are using TurboTax online version, to enter your 401k contributions, follow these steps.

1. Go to the Income & Expense category
2. Scroll down the page to Other Business Situations
3. Click on the drop-down arrow to reveal more information if necessary.
4. Select Self-Employed Retirement Plans

@BertMerc

[BertMerc]

Thank you, extremely helpful.  May I contribute more to "Employer Matching (Profit Sharing) Contributions"?

[RobertB4444]

@BertMerc  The individual contribution limit for a 401K for 2021 was $19,500 ($26,000 if you are over 50).  The overall contribution limit - which includes employer matching and any other money that finds its way in there - is $58,000 ($64,500 if over 50).

So you can match your employees contributions as long as the total contributed does not go over $64,500 for you and your wife individually (and you are keeping track of your income limitations).

[BertMerc]

How do I enter amount already contributed to my 401k Solo plan?

[MarilynG1]

Form 8606 only applies to IRA contributions and distributions. 

There is no similar form for qualified retirement plans since the calculation of the nontaxable portion is done by the plan administrator, not the participant.

Click this link for more info on Solo 401K Basis for Rollovers.

[BertMerc]

My wife established a Solo 401(k) self-employed retirement plan; it is an individual 401(k) designed for a business owner with no employees and we file a Schedule C in her name only.

In TurboTax Home & Business desktop version, In the Business main category, I scroll down the page to Less Common Business Situations and under “Self-Employed Retirement” I checked the box “Maximize Contribution to Individual 401(k)”.  Turbotax gave me a figure ($35,778) which I in turn contributed to my Solo 401(k) self-employed retirement plan for plan year 2021.

Turbo Tax shows the following:

Already Contributed - $0

Maximum Allowed to Qualified plans - $35,778.

Amount to Contribute by Plan due date --$35,778.

So, my question is do I do anything else?  I'm worried that since Turbo Tax is showing Zero for amount contributed do I need to enter this somewhere or has this already been calculated and I don't need to anything else?

[AliciaP1 · Accepted solution]

No, you do not need to do anything else.  The Amount Contributed field is for contributions made during 2021 for the 2021 plan year.  Since you are using the taxes to calculate the contribution, the system knows the amount will be paid in 2022 for the 2021 plan year.

@BertMerc

[BertMerc]

Thank you Alicia, you're a lifesaver!