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Question

Self Employed Solo 401k Contributions - Should they increase your refund based on your federal tax rate?

Forum|Forum|1 year ago
April 9, 2025
1 reply
0 views

Im in the 22% tax bracket. When I contribute 10k to my solo 401k inside of turbotax, my refund only increases by 9.6% or $960. What is the math behind this figure?

Ask the Experts - Tax Due - April 2025

Employee

It does not come off your schedule C so you still pay the 15.3% SE tax on the Net Profit. It is an adjustment to regular income on Schedule1 line 16 which goes to 1040 line 10. It only reduces your taxable income on 1040 line 15.

And having less taxable income and less tax on line 16 can reduce any credits you were getting. You need to compare 1040 lines 16-22 before and after you enter the 10,000 401K.

compasslocalAuthor

Some how after standard deductions the 22% tax rate becomes an effective rate of 7.5% and so a 10k contribution only lowers taxes by less than $1k. What a bummer.

Employees also have to pay social security and medicare on amounts contributed to retirement plans. Annoying but accurate.

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