solo 401k

Forum|Forum|1 year ago
January 11, 2025
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My understanding is that with a solo 401k, I can contribute 23k plus 7500 catch up, as the employee. How much can I contribute as the employer? If I check the "Maximize individual contribution to 401k" box, will that include the employer contribution? Thanks

TurboTax Home & Biz Windows

Best answer by dmertz

TurboTax uses the Deduction Worksheet for the Self-Employed from IRS Pub 560 (called the Keogh, SEP and SIMPLE Contribution Worksheet in TurboTax) to calculate the maximum permissible contribution. The portion of the deductible amount in excess of the employee regular and catch-up elective deferrals would be the employer contribution.

https://www.irs.gov/publications/p560#en_US_2022_publink10009065

dmertzAnswer

Employee

https://www.irs.gov/publications/p560#en_US_2022_publink10009065

hesformesAuthor

Thanks. I took a look at that worksheet and it gave the wrong Maximum contribution amount. It didn't account for my SE health insurance premiums, which I put into Turbo Tax. Also it came up with a maximum contribution that didn't correspond to simply adding the amount of my insurance premiums. Very confusing. I'm using the formula you gave me last year of Net profit - health ins premiums - half of SE tax = maximum contribution. I figured that the employer contribution would be maximum contribution - employee contribution, but I wanted to make sure, as what seems sensible isn't necessarily equal to IRS rules. Do you have any idea why Turbo Tax doesn't figure health insurance premiums into their calculations even when those premiums are specified as a business expense? Has anyone given them feedback on this? Where can I do that?

dmertz

Employee

The net earnings that remain after the solo 401(k) contributions is what is left to support the SE health insurance deduction, not the other way around. Also note that net earnings are net profit minus the deductible portion of SE taxes. In other words, net profit first goes to the deductible portion of SE taxes, then to your solo 401(k) contributions, then to your SE health insurance deduction. TurboTax does all of these calculations as described by the IRS.

The SE health insurance deduction is a personal deduction, not a business expense.

The one thing that TurboTax does not have the ability to do is to enforce the limit on employee elective deferrals when the individual also makes elective deferrals to another employers plan. In that case the Maximize function for a 401(k) contribution cannot be used and the limited elective deferral must be calculated and entered manually.