How do I make a solo 401k contribution if my married filing jointly MAGI is over $129K?

Forum|Forum|2 years ago
February 13, 2024
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Hello, my spouse is self employed and has a traditional solo 401k account setup.

I have been trying to enter a contribution for her 401k. However, since our joint MAGI is over $129K, Turbotax says the entire contribution is disallowed (excess) and creates a 6% penalty, on a 5329 form.

I have been making this contribution for years and it has been OK. However, starting in 2022 Turbotax automatically checks off the box that my wife is eligible for a employer retirement plan (due to her being self employed, as she has no other job or W-2). Turbotax explains that due to this check-off, there is a MAGI-based limitation to my spouse's 401k plan.

I cannot find anything from the IRS website that says there is a limit on solo 401k contributions based on too high of a MAGI. I looked mostly here: Self-Employed Individuals – Calculating Your Own Retirement-Plan Contribution and Deduction.

So my question is, is my wife eligible to donate to her solo 401k? If so, how do I enter the contributions correctly?

Thank you!

Best answer by dmertz

A 401(k) is not an IRA. Nothing about a solo 401(k) is to be entered under Deductions & Credits, so remove what you entered there regarding the solo 401(k) contributions. Solo 401(k) contributions are entered in the business section.

potatoes77Author

Here's what Turbotax 2022 says in its help menu. I have underlined the part that is confusing me, that implies if one earns more than $129K from their sole proprietorship, they can't contribute to their solo traditional 401k at all.

Nondeductible IRA Contributions

If you (or your spouse) are covered by a retirement plan at work, and your modified adjusted gross income (AGI) is above a certain amount, then you can't deduct part or all of your contribution.

Modified adjusted gross income limits

...

You can't deduct any of your contribution if your modified AGI is:

- $129,000 or more, and you're married filing jointly or a qualifying surviving spouse

...

How can I tell if I'm covered by a retirement plan at work?

Look at box 13 on your W-2. You're considered to be covered if the Retirement Plan box is checked.

You are also considered to be covered if you are self-employed and have contributed to a SEP, SIMPLE, Keogh, or individual 401(k) plan.