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

[PS13]

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. 

[dmertz]

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.

[PS13]

Thank you, appreciate your answer. 

[kmseddon]

Hi Dmertz - 

What did you mean the worksheet has not been updated?  I've been having issued with getting TuboTax to reflect my wife's contribution to her solo 401k and wonder if this is the issue?   I am an employee and I maxed out my contribution to my 401k.  My wife is a contractor and she made approximately $63k and is a sole proprietor.  She made $5,500 in contributions to her solo 401k.  Yet when I enter this into into TurboTax, our Federal tax liability does not change.  Even when I click on maximize this deduction or change the "employer contribution" (i.e. her contribution to her 401k, it doesn't change our federal tax refund.  We should be able to increase her contribution to at least $19,500 by the time we file and have her company contribute some of her pay to her 401k to reduce her federal tax bill, but we can't get TurboTax to tell us the max amount.  Any advice on how to do that would be greatly appreciated.   Stay safe!

[dmertz]

In the 2½ months since I made my previous post the Keogh, SEP and SIMPLE Contribution Worksheet has been updated to correspond to the 2020 limits.  TurboTax's summary page of self-employed retirement contributions is extremely convoluted; examine the Keogh, SEP and SIMPLE Contribution Worksheet itself to see the maximum elective deferral and employer contribution.

Additionally, run the review of the tax return to see if TurboTax flags any problems with the tax return.  Examine Schedule 1 line 15 to see the result of the Keogh, SEP and SIMPLE Contribution Worksheet.  Examine your wife's Schedule C to see the amount of net profit.  It's possible that her 1099-NEC is not properly linked to the Schedule  C  Examine From 1040 to see the overall income calculation.