Question

IRA and Solo 401k Contributions

Forum|Forum|4 years ago
February 16, 2022
2 replies
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the IRS uses the term "taxable compensation for the year" so on my tax return is that number the "total income" or is it the "adjusted gross income"

I don't want to get into trouble and contribute too much. All of my income is 1099 income.

thanks for any help!

VolvoGirl

Employee

For an IRA contribution. If you only have self-employment income you can only contribute up to your net profit reduced by the deduction allowed for one-half of your self-employment taxes. But not over the max 7,000. See IRS publication 590 http://www.irs.gov/pub/irs-pdf/p590a.pdf

So check 1040 Schedule 1 line 15. You have to deduct that amount from your Schedule C Net Profit. That will give you the allowed contribution for the 1099NEC income.

M

mrtk31Author

thanks for the help, I'm just so confused

I'm using turbotax self employed live, I can't see a formal schedule C.

If you could just help me where to look to find this information on my net earnings.

I also have another expense from a side thing I started that hasn't gotten to the point of earned income yet that is about $7,000 I spent last year that I included on my self employment income/expenses.

I just wish there was a way I could see how much I am allowed to put into IRA/Solo 401k without getting into trouble

M

mrtk31Author

I just realized I responded and did not notice Dawn's post which I'm reading now

DawnC

Employee

Neither. Both of those line items can and usually do contain income not considered compensation. If all of your income comes from self-employment 1099s, your taxable compensation is your business net profit, Schedule 1, Line 3 less self-employment tax deduction which is on Line 15 of Schedule 1. TurboTax can calculate your maximum contribution for you.

Once your self-employment income is entered:

In your return, type SEP IRA contributions (use the whole phrase) in the Search box.
Select the Jump to link at the top of the search results.
This will take you to the Self-Employed Retirement Plans screen.
- If you get a message that Self-Employed Retirement Plans are only for self-employed individuals, this means that you haven't entered any self-employed income.
TurboTax will ask you whether you contributed to different types of retirement plans. Select Yes to Solo or Roth 401k.
Check the box to Maximize Contribution to Individual 401k.
Click Continue.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

M

mrtk31Author

thank you so much Dawn!

so if the number is $16,000 that turbotax says my maximum contribution to a solo 401k plan, and I have contributed $6,000 already to a Roth IRA (which comes first in my retirement strategy), then that means I would only have $10,000 possible contribution to my solo 401k plan without getting into trouble?

D

DianeW777

You may not have the current (tax year 2021) allowable limit.

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

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:
- $20,500 in 2022 ($19,500 in 2020 and 2021), or $27,000 in 2022 ($26,000 in 2020 and 2021) 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