solo 401k employer contribution limit

[vito31]

We are a single owner LLC and setup a solo 401K plan in 2022.

How much can we contribute for 2021 tax year? before April 18th 2022.

Are we limited to just the employer contribution part which is 25% of net income - 1/2 of self-employment tax?

[MayaD]

No. You can also make employee elective deferral contributions of up to $19,500 for 2021. If you’re 50 or older, the limit becomes $26,000 for 2021.

 This amount includes all 401(k) plans you’re enrolled in. 

Contributions to a Solo 401(k) consist of two types:

1. Elective Deferral (401k) also known as Employee Contributions
2. Profit sharing also known as Employer Contribution

With a Solo 401k, you and your spouse can participate in the same plan.

[vito31]

thank you for your answer. I'm getting some conflicting information.

My broker's retirement department just told me the elective deferral depends on the elective deferral deadline for my State which is Connecticut. If the deadline is 12/31/21 we can only defer 2021 employer part in 2022.

The solo 401K plan was just set up in March of 2022. Single owner LLC with no employees. 

Any other guidance would be much appreciated. 

[dmertz]

Because the Solo 401(k) was not set up before 2022 and you therefore could not by the December 31, 2021  deadline make the election to make an employee contribution, you are not permitted to make an employee contribution for 2021.  You can only make the employer contribution which is a maximum of 20% of net earnings.  Net earnings are net profit from self-employment minus the deductible portion of self-employment taxes.

To get TurboTax to calculate the maximum permissible employer contribution, mark the Maximize box for a SEP contribution, not a 401(k) contribution.  Marking the Maximize box for a 401(k) contribution would cause TurboTax to assume that you are eligible to make an employee contribution, which is not true in this case.

[vito31]

thank you very much for the clarification.