topic Solo 401 k contribution before any deductions in Self employed

Solo 401 k contribution before any deductions

Vladimir101 — Mon, 09 Mar 2026 09:15:08 GMT

As a self-proprietor, I opened 401K solo plan. I received $22,000 from my business for the year 2021 before any deductions. I'm over 65.
As an employee, I put $20,000 to 401K. But after all deductions net earnings will be less than $20,000. Did I put too much in the 401K?

Re: Solo 401 k contribution before any deductions

PatriciaV — Thu, 03 Mar 2022 14:21:14 GMT

It's possible you did over-fund your Solo 401K.

According to IRS One Participant 401k Plans:

When figuring the contribution, compensation is your “earned income,” which is defined as net earnings from self-employment after deducting both:

one-half of your self-employment tax, and
contributions for yourself.

Use the rate table or worksheets in Chapter 5 of IRS Publication 560, Retirement Plans for Small Business, for figuring your allowable contribution rate and tax deduction for your 401(k) plan contributions. See also Calculating Your Own Retirement Plan Contribution.

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

Re: Solo 401 k contribution before any deductions

Vladimir101 — Fri, 04 Mar 2022 23:02:16 GMT

Thank you very much for your response.

TurboTax says that I must withdraw the excess from the plan, or may have to pay penalty.

Which option should I shoose for withdrawal based on the definitions below?

Type Description Action required

Nondeductible contribution	Employer contributions to a qualified plan in excess of the applicable deduction limit for the plan year.	Nondeductible contributions remain in the plan and may be carried forward and deducted in subsequent years. The employer may be subject to a 10% excise tax on the nondeductible amount each year until corrected (refer to IRS Form 5330). Vanguard doesn't need to be notified of this type of excess.
Excess deferral	Employee deferral in excess of the limit under the Internal Revenue Code (IRC) Section 402(g).	In general, the excess deferral amount and earnings must be distributed to the participant by April 15 of the year following the year the excess deferral was made. If the excess deferral isn’t distributed by the April 15 deadline, the employer may be eligible to make a corrective distribution under the Employee Plans Compliance Resolution System (EPCRS).
Excess annual additions	Total additions to a participant’s account, which exceed the lesser of 100% of the participant’s compensation or the dollar limits under 415©. These may include both salary deferral contributions and employer contributions.	In general, the portion of the excess attributable to employee deferrals may be returned to the participant, and any remaining excess is reallocated in accordance with the terms of the plan.
Mistake of fact	A mistaken contribution (generally due to a mathematical error). The types of errors that may be considered a mistake of fact are very limited (see IRS Revenue Ruling 91-4).	Mistakes must be corrected within 1 year of the mistaken contribution. The mistaken contribution (reduced by losses) will be returned to the employer. We recommend that you consult with a financial or tax advisor before selecting this option.

Re: Solo 401 k contribution before any deductions

ErnieS0 — Sat, 05 Mar 2022 00:10:31 GMT

You have an excess deferral. If the excess is not timely distributed, it is:

included in your taxable income for the year contributed, and
taxed a second time when the deferrals are ultimately distributed from the plan.

The excess deferrals may not be distributed until a distribution is otherwise permissible under the terms of your plan. Additionally, you do not receive basis in the excess deferrals.

See Consequences to a Participant Who Makes Excess Annual Salary Deferrals