Solo 401k Contribution limits

Forum|Forum|6 years ago
February 20, 2020
2 replies
33 views

I have a employer sponsored 401k which I have had the elective maximum contribution of $19k for 2019.

Separate form the above W2 income, my spouse and I have 1099 income and we will be electing to be treated as Qualified joint venture.

1. If my income from the joint venture is say roughly $140k, then my contribution limit for my solo 401k will be roughly $44k. Since this qualified venture is separate from my W2, employment I would technically have a second limit of $56k though I do not make enough to get to that limit.

2. My spouse income from the joint venture is $30k, thus the limit here would be roughly $23.5K

I just want to make sure I understood this correctly.

I used this to come up with the rough limits -> https://www.bankrate.com/calculators/retirement/self-employed-401-k-calculator.aspx

Finally, I assume I can capture all this in TurboTax?

TurboTax Self Employed Online

ColeenD3

Level 15

The BankRate site used 2017 information. Please see the site from the IRS, although it seems to be using 2020 information.

Contribution limits in a one-participant 401(k) plan

The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:

Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
- $19,500 in 2020, or $26,000 in 2020 if age 50 or over ($19,000 in 2019, or $25,000 in 2019 if age 50 or over); plus
Employer nonelective contributions up to:
- 25% of compensation as defined by the plan, or
- for self-employed individuals, see discussion below

If you’ve exceeded the limit for elective deferrals in your 401(k) plan, find out how to correct this mistake.

Total contributions to a participant’s account, not counting catch-up contributions for those age 50 and over, cannot exceed $57,000 (for 2020; $56,000 for 2019).

Example: Ben, age 51, earned $50,000 in W-2 wages from his S Corporation in 2019. He deferred $19,000 in regular elective deferrals plus $6,000 in catch-up contributions to the 401(k) plan. His business contributed 25% of his compensation to the plan, $12,500. Total contributions to the plan for 2019 were $37,500. This is the maximum that can be contributed to the plan for Ben for 2019.

A business owner who is also employed by a second company and participating in its 401(k) plan should bear in mind that his limits on elective deferrals are by person, not by plan. He must consider the limit for all elective deferrals he makes during a year.

Solo 401k

jetlenexa

Level 2

I follow the math on the solo 401k limits, but I can't figure out how to input this into Turbo Tax Home & Business...

HELP

AnnetteB6

Level 15

See the following instructions to get to the section of your return to enter your self-employed retirement contributions.

If you are using TurboTax CD/downloaded Home and Business version, start by going to the Business tab at the top of the screen. Then, scroll down to Less Common Business Situations and click Start or Update beside Self-Employed Retirement.

If you are using TurboTax Online Self-Employed, you can find the self-employed retirement contributions section by going to Federal > Income and Expenses and then scrolling down to the Other Business Situations section. Click Start or Update beside Self-Employed Retirement Plans.

@jetlenexa

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dmertz

Level 15

With $140k of net profit allocated to you, the amount that you are eligible to contribute to the solo 401(k) is not about $44k unless your solo 401(k) permits after tax contributions. Without the ability to make after tax contributions and having already made the maximum elective deferral to the plan at the W-2 employer, your own contribution to the solo 401(k) is limited to only the maximum permissible employer contribution, about $26k.

TurboTax's Maximize function for a individual 401(k) contribution does not support the case where elective deferrals or Roth contributions are also made at a different employer. Since you made the maximum elective deferral at your W-2 employer, you need to cause TurboTax to calculate only the permissible employer contribution by using the Maximize function for either a SEP contribution or a Keogh Profit Sharing contribution for your contribution. You would still use the individual 401(k) Maximize function to determine your wife's maximum total contribution, assuming that she has not made any elective deferrals to another employer's plan.

saudahmirzaAuthor

Level 3

Thank you so much for the clarification. That was very helpful.

I assume for my spouse who only has a solo 401k, that reporting will be much more straightforward within TurboTax?

Also, could you recommend a reliable calculator to make sure we are making the right level of contribution? I am unable ot find it in the IRS documentation.

dmertz

Level 15

Yes, with only the solo 401(k), your wife can just use the Maximize function for an individual 401(k) to determine her own maximum individual 401(k) contributions.

TurboTax just implements the Deduction Worksheet for Self-Employed in Chapter 5 of IRS Pub 560 as TurboTax's Keogh, SEP and SIMPLE Contribution Worksheet, so you can review the calculation there (taking into account that you can't make an elective deferral to your own solo 401(k): https://www.irs.gov/pub/irs-pdf/p560.pdf