Self Employed 401k

Forum|Forum|4 years ago
March 21, 2022
1 reply
12 views

Hi,

I run a single member LLC, my Business made a $19,500 contribution to my solo 401k. I still owe about $13,000 in taxes, is there a way to some how get this into a retirement account?

I have read this link(https://ttlc.intuit.com/community/self-employed/help/what-is-a-solo-401-k/00/2483402 )

And I don't quite understand this section:

"In addition to these employee contributions, you can make nonelective company contributions of up to 25% of compensation as defined by your plan. This compensation doesn’t include retirement plan contributions or the self-employment tax, which are deducted from your income. TurboTax will make these calculations for you (or tell you if you contributed too much to your Solo 401(k))."

So can I add another 25%, I'd much rather spend as much money on myself as I can then give it to the gov.

I read online, that the max employer contribution is $58,000. So could I add another $13,000 to that and not pay that in taxes or pay much less? It says the deadline for this is April 17th.

If you have any other suggestions please let me know. One of the main reasons I went with the full $19,500 is because I thought it was going to deduct my tax bill more then it did.

Any clarification/direction would be extremally helpful, thank you for your time.

GeorgeM777

Level 11

Yes, you can contribute more money to your solo 401(k) plan. The maximum contribution to your 401(k) is $58,000 and because you have contributed $19,500, you can still contribute additional funds to your 401(k).

Another option you might consider is to make a contribution to a traditional IRA. A contribution to a traditional IRA may reduce your taxable income however, because you are already covered by a retirement plan at work, income thresholds could become an issue which would prevent you from deducting your IRA contribution. You could still make the contribution to the traditional IRA; however, your contribution (if you went over the income thresholds) would be "non-deductible," and you would want to prepare Form 8606 along with your return so you could track you non-deductible contributions. TurboTax will prepare Form 8606 for you if required.

Here is link to traditional IRA income thresholds that you might find helpful. New income ranges for IRA eligibility in 2021

Perhaps for now, your best option may be to just increase your 401(k) contribution to the point where your tax liability is more consistent with your financial goals.

@futurestrader39

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futurestrader39Author

Level 3

Thanks for the info, even if it bump my max contribution up to $58,000 it only takes about $1000 off my FED income tax. I thought maxing out your 401k would help reduce your tax bill? Am I miss understanding something or am I entering this in, in the wrong spot?

Below is a screen shot on where I am entering.

Thanks again!

GeorgeM777

Level 11

It is not clear why your tax liability decreased by only $1,000 after maxing out your 401(k) contribution. Have you entered your 401(k) in the manner recommended by TurboTax? Those steps are as follows:

In the Search bar, enter self-employed retirement plans (include the hyphen)
Click on the jump-to link
Answer Yes on the screen Did you make a 2021 self-employed retirement plan contribution?
Answer Yes on the screen Did you contribute to an Individual or Roth 401(k) plan?
On the next screen, enter your contributions
If you have not made all your contributions for the tax year and would like TurboTax to calculate your maximum contributions for the year, check the box next to Maximize Contribution to Individual 401(k).

Continue through the pages until you reach Your Retirement Contributions. This page will show a summary of your contributions. This page will also show whether you have an excess contribution. It will also show whether you still have time to contribute funds to your plan.

In addition to the above, have you entered your estimated tax payments or other tax withholding on your return?

@futurestrader39

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