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Limit of Roth SEP IRA or solo 401k contribution

Starting in Jan 2023, SEP IRA can be roth, but I can't find anywhere on the limit of it. Roth SEP IRA can still be 25% of the net business profit, just like the traditional SEP IRA?

 

If I have two businesses, and one of business is not earned income (not eligible to contribute to SEP IRA), how to enter the Roth SEP in Turbotax?

 

Thank you!

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7 Replies
dmertz
Level 15

Limit of Roth SEP IRA or solo 401k contribution

The IRS has not yet provided guidance on how to report such contributions.

 

Has your SEP plan agreement been modified to permit Roth contributions?  If not, no Roth SEP contribution can be made.  The IRS has not issued any updated Form 5305-SEP to allow Roth contributions.  I don't know if there are prototype SEP agreements that have been so modified.

Limit of Roth SEP IRA or solo 401k contribution

It seems the deadline for 2023 solo 401k is also in April 2024. If I do roth solo 401K, is the limit the same as the traditional solo 401k - For 2023, if I contribute all net profit of my LLC into roth 401k, the employer match will be $0? Is it true that the employer contributions must be made to a traditional solo 401(k) account, no roth?

 

Does the employee contribution have to be paid from the business bank account (no personal bank account)? 

 

On top of 401k roth contribution, I can also contribute an additional $6500 to individual roth ira if meet the AGI requirement?

Limit of Roth SEP IRA or solo 401k contribution

Also I heard we can also contribute the entire solo 401k to roth (up to $66,000) by contributing the employer portion to the traditional 401k and then transfer to the roth 401k, but I am thinking how to correctly enter it in Turbotax. Do I enter the employer-matching (profit-sharing) portion on schedule C as a business expense and then add it to employee roth 401k contribution? But if we do this, Turbotax will give a warning when roth 401k contribution can't be more than $22500. Thank you so much!

ugafun
Returning Member

Limit of Roth SEP IRA or solo 401k contribution

New in 2023, is the Roth SEP.   How to contribute to a SEP Roth as I have called Chase, Vanguard ,  Fidelity & Charles Swab and they say that the IRS has not given them how to report so they don't offer it?  What is a work around solution to this?  please let me know my email is [email address removed]

dmertz
Level 15

Limit of Roth SEP IRA or solo 401k contribution

It's somewhat pointless to ask how to report Roth SEP contribution if the SEP plan agreement doesn't allow for such a contribution.

 

Once plan agreements are amended to allow for Roth SEP contributions, IRS Notice 2024-02 suggests that the Roth SEP contribution would be taken as a deduction as if it was a traditional SEP contribution followed immediately by an entirely taxable Roth conversion reported on a Form 1099-R for the year in which the deposit into the designated Roth account is made.

 

Given the information in IRS Notice 2024-02 and because there is no limitation on making a Roth conversion from a SEP IRA, there is no reason not to make a traditional deductible SEP contribution and immediately convert it to Roth.  If one has basis in nondeductible traditional IRA contributions that would result in less than the full amount of the Roth conversion being taxable, this could even result in a better taxable outcome than a directly making a Roth SEP contribution.

Limit of Roth SEP IRA or solo 401k contribution

When calculating the employee roth 401 contribution LIMIT, do we need to minus 50% of the self-employment tax or just 100% of the net profit (schedule line 31)? I have another trading business to write off all the self-employment income so I don't have SE tax to pay.

dmertz
Level 15

Limit of Roth SEP IRA or solo 401k contribution

Total 401(k) contributions are never permitted to exceed net earnings as defined for this purpose.  Net earnings are defined as net profit (Schedule C line 31) minus the deductible 50% of self-employment taxes.

 

If your net profit of the two businesses combined is zero or less, you have no net earnings to contribute to a 401(k).

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