self employed Individual 401K Roth Contributions

Forum|Forum|1 year ago
March 18, 2025
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I'm self employed, over 65, and want to contribute to my ROTH 401K. Let's assume I made 200K net. TurboTax will only allow me to contribute $23K as an elective deferral and $7,500 as a Catch up. There is no place to enter the employer contribution for a ROTH 401K (since I'm solo, I'm the employee and employer). That's a significant error since I'm allowed to contribute up to $76,500 in 2024 to a ROTH 401K. How do I enter the additional employer contribution of $46,000?

TurboTax Home & Biz Windows

dmertz

Employee

With employee contributions of $30,500, an employer contribution would require something in excess of $234,000 of net profit from self employment.

I have not seen any guidance from the IRS regarding how to report Roth employer contributions. For employer contributions to non-owner employees the contribution is to be reported as a traditional 401(k) employer contribution on the W-2 and the employer must issue a Form 1099-R with code G indicating as if there was then an In-plan Roth Rollover with the gross and taxable amounts both being equal to the amount of the employer Roth contribution. Applying this same method to a self-employed employer Roth 401(k) contribution, you would enter it as a traditional employer contribution an then issue to yourself the aforementioned code-G From 1099-R (probably entered as a substitute Form 1099-R (Form 4852) so that explanation could be provided, but including Form 4852 will prevent you from being able to e-file.) I don't know if this is what the IRS expects, but it produces the correct result.

EricRAuthor

According to Fidelity:

You can contribute up to $69k combined from Employee and Employer if your employer allows it. Catch up is $7500. Unlike Roth IRAs, Roth 401(k)s don't have any income limits. Regardless of how much you earn, you can contribute to a Roth 401(k) if your employer offers one. Since I'm both the employee and employer, I can allow such contributions. The problem is TurboTax doesn't have a way to take advantage of this without some convoluted workaround per your suggestion which will negate my ability to e-file. See URL below.

https://www.fidelity.com/learning-center/smart-money/roth-401k-contribution-limits

dmertz

Employee

"You can contribute up to $69k combined from Employee and Employer if your employer allows it."

That's not the whole story because it does not address the limitations on employer contributions. One of those limitations is that the employer contribution is not permitted to exceed 20% of net earnings from self-employment, which is why your net profit would have to exceed $234,000 (somewhat more if you do not also have $168,600 of W-2 income subject to Social Security taxes) to be eligible to make a $46,000 employer contribution. However, you could make after-tax employee contributions, plan permitting, to bring you up to the $76,500 limit, provided that your net earnings are at least that much. Net earnings are net profit minus the deductible portion of self-employment taxes.

As I said, as far as I know, the IRS has not provided any guidance as to how to report the amount of an employer Roth contribution to an individual 401(k). Because it is not deductible, it could possibly simply be omitted from the tax return, but if you do so there would be no tax record of it and as a result there would be no checking against the 20%-of-net-earnings limit. By entering it as a deductible contribution and an IRR, that checking gets done. (I'll agree that the situation is a bit different with a sole proprietor than a separate employer and employee because the sole proprietor gets both the tax deduction for the traditional employer contribution and the income from the IRR cancel each other out on the same tax return, while with a separate employer and employee the employer's tax return shows the deduction and the employee's tax return shows the taxable income.)