Solo 401k contribution for sole proprietor, new E...
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Returning Member

Solo 401k contribution for sole proprietor, new EIN in 2020

I am a sole proprietor and got an EIN in my own name in August 2020 and started a solo 401k in September 2020. I also have a day job and get a W2.

I have some sole proprietorship earning from January to December 2020.

For 2020, contribution for my solo 401k (Fidelity PROFIT SHARING KEOGH), can I calculate employer contribution of 25%, based on total earning of 2020 from January to December?   

Or, solo 401K contribution should be only based on earning after August?

Thanks for your time. 

2 Replies
Level 15

Solo 401k contribution for sole proprietor, new EIN in 2020

Your employer contribution to the solo 401(k) for 2020 is based on your full annual net earnings, not just he earnings from the date in 2020 that you established the solo 401(k).

 

However, your maximum employer contribution is not 25% of net earnings.  Net earnings are your net profit from self-employment minus the deductible portion of self-employment taxes and your maximum employer contribution is the lesser of 20% of net earnings or half of your net earnings that remain after subtracting any regular (not catch-up) employee contribution to the solo 401(k).  This is calculated on TurboTax's Keogh, SEP and SIMPLE Contribution Worksheet, but note that this worksheet has not yet been updated to use the 2020 limits for regular and catch-up employee contributions.

Returning Member

Solo 401k contribution for sole proprietor, new EIN in 2020

Thank you, appreciate your answer. 

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