How to calculate solo 401k contributions [Self Employed Retirement Plan]
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- Опубликовано: 23 сен 2020
- How to calculate solo 401k contributions is a complete walk-through on contributing to your self employed small business retirement plan. The solo 401k goes by many names including single(k), solo 401(k), Individual(k) or 'owner-only' plans.
The maximum contribution for the self-employed small business owner for 2019 is 56,000 and for 2020 the maximum contribution is 57,000. The calculation includes both employee and employer contributions to the solo 401k.
The calculation is different than contributions for an s corporation and is a bit tricky unless you know the exact formula.
If you have more questions about the solo 401k please leave a comment below.
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Secure Act 2019 ruclips.net/video/3JnGn4CtyV0/видео.html
The 401k is good, because retirement choices determine a lot of things. My parents both spent same number of years in the civil service, but my mom was investing through a wealth manager, and my dad through the 401k. My mom retired with about 4.2 million, but my dad retired with roughly 1.8 million. So it really does.
Effective management of personal finances is more important than the amount of money saved, regardless of whether one earns income through work or investment. To optimize financial results, individuals may seek the guidance of a qualified financial advisor who can provide personalized advice and strategies to minimize expenses and maximize income.
I agree, before the pandemic got real serious, I used to handle all my investment and I was pretty good at it, fast forward to post-pandemic and my-portfolio is steady in the red with profit rate down to the lowest, that's when I touched-base with a coach I saw featured on businessweek, who restructured my portfolio and over the last couple years, I've made over $850k from initially $210k
@@LukeMcfarlane5 I’m new to all this, heard it's a good time to buy and basically I've just got cash sitting duck in the bank and I’d really love to put it to good use seeing how inflation is at an all time-high, who is this coach that guides you, mind I look them up
It's best you do your due diligence, I have my portfolio overseen by ‘Natalie Lynn Fisk’ and her qualifications speak for itself. Most likely, the internet is where to find basic info, she has a noticeable webpage for consulting.
@@LukeMcfarlane5 I just checked her out and I have sent her an email. I hope she gets back to me soon.
Thank you for making these things more accessible to people who aren't accountants or tax pros. Very helpful!
Great summary! Very helpful.
This is a fantastic instructional video for the self employed doing their own taxes. Thank you. I will be amending my 2020 tax return just filed and will be saving a ton in taxes!
ruclips.net/video/hLOPsKwuwKs/видео.html
Great breakdown!
Super helpful. Thank you!
Thank you!
Can you do a video for calculating contribution for solo401k with Mega Backdoor Roth option? Would also love an opinion on when it makes sense to contribute employee contribution as Roth vs pretax (any salary limits and tax brackets that make sense to choose one vs another)? Also when it would make sense to contribute employer portion vs all as after tax non Roth for the Roth rollover (deductions resulting in less income for QBI). Complicated but hopefully this made sense!
Outstanding presentation
Thank you! Cheers!
Hey Travis, thank you so much for this info. Do you like a roth solo 401K over a regular solo 401k? I already have a roth IRA, so dont know what to do (my CPA isn't helpful at all!). Also, vanguard says that there are "no employer contributions for the Roth 401(k)". Should I switch if i already openeed up a roth solo 401k? In my case it doesn't matter for 2020 because my max employer contribution is $0, but it may change down the road. Im so very confused and really trying hard to figure all of this out. Thank you again.
Thank you very much
Where does the employer portion of the contribution get deducted on the tax return?
i want to start the contribution as solo, has to be done by this Deduction Worksheet for Self-Employed? on the same time i do my 2019 income tax?
is there any video on 401k and profit sharing plans?
a few questions regarding the 401k solo
1)will the contributions be only directly from my llc income? or from other income not earned from my llc.
2)will it be a monthly contribution/automatic deduction?
3) can we just contribute in bulk or one time before april 15?
4)if by any chance that i will give up my llc, where can i rollover the solo 401 k?
5)is it jsut going to be my name in the solo 401k acct?
6) if my wife can be on the solo 401 k acct. and we decide to terminate our llc, can she roll the solo 401 k to her existing traditional 401k at her job?
thank you
Is a solo 401k tax deduction? Also, if my net income is 25k what is the max I can contribute for 2020? Thanks and God bless
Great Video thanks for putting it together. QUESTION - Do I have to pay myself on a w2 in order to contribute to solo 401K - I have a sole proprietor ship LLC
No, the calculation done in this video was specifically for schedule c type filers. An owner would only use a w2 for themselves in a corporation, such as an s-corp.
Hi Travis, great video and resource, thank you! I need clarification on elective deferral portion - $27k including catchup for 2022. If i already contributed $27k through my day job via w-2 earnings. Can i still contribute another $27k through my solo 401k from Sch C? (after following the calculation per the worksheet, of course). Thanks
no, elective deferrals are across all plans however you can work it to save more via employer contributions or After tax contributions to the solo 401k.
I've heard that you could also fund a SEP so that you're "over funding" your retirement plan. Is that correct?
Clearest explanation I’ve seen so far. I’ve heard that the contribution deadline for 2022 is by December of the contribution year though, is that true?
No that’s not true.
The employee side contribution should be done by the last paycheck for the year but the profit sharing contribution may be up to October of the following year. It all depends on the contribution and entity type.
Great Videos - so far the best about taxes - thanks again.
For the 2022 tax year, the Max Contribution is $61K. Can I contribute an extra $6,500 to my Roth IRA (as after-tax money), or this has to be deducted from $61K? Second Question: As an employer - is the deadline Dec 31st, 2022, to contribute to Solo 401K - if so is it safe to contribute $40,500 if we want to maximize (If the net income is $150K)
$6k for Roth IRA 2022. Deadline for employer contribution is tax filing deadline including extensions.
Good information. Does your amount contributed depend on whether you are contributing to a Roth Solo 401K or a Traditional Solo 401? Is the contribution limit lower if the contribution is to a Roth 401K?
No, it’s counted only as contributions. That’s a good question though. I may do that in a future video.
how do I find Travis reply to other subjects questions
THx
I have a S401K and I funded it through roll over from another retirement plan and I did Roth Conversion on the whole thing. My understanding is that I can make contributions to the ROTH without having to do any crazy calculations provided I don't exceed the 25% threshold as the profit sharing contributions are only allowed on the traditional. Can you confirm my understanding?
You would still need the same math. The reason is because it's a deduction on the business side based on net-profit. So as deductions increase on the business side, the net profit decreases. I know, it's totally crazy math but the math isn't considering taxes in that sense. GREAT QUESTION THOUGH!
Hi Travis, great video! I am looking to open a Roth solo 401k, can I open an account and make a contribution for 2021 before the April 15th, 2022?
Yes
I see you say that the Secure Act of 2019 makes it possible to contribute up through October of the year following the year for which you are filing. Does it have to be with income earned in the tax year? or can it be earned income from the year following the year for which you are filing?
ruclips.net/video/HXX1-AKzH58/видео.html
Can a solo 401k plan have employee matching?
I understood everything until you got to the Roth question. Are you saying you have to include a Roth contribution that’s link in with the solo 401k? I have a separate backdoor Roth so do I have to deduct the 6,000 from the 19,500?
No, it’s separate from solo.
@@TravisSickle thank you very much. I appreciate your videos greatly
As an independent contractor/sole proprietor, do I need to create a W2 for myself in order to make my employee contributions to the solo 401K?
Only if you’re an s-corp
@@TravisSickle That’s what I gathered from watching your videos but my CPA keeps telling me I am not eligible and if I contribute to solo 401K the IRS will come back 6 months later asking for a W2. Very confused If I should contribute to my solo401k or instead choose SEP IRA which they are asking me to go with.
Where is the Employer contribution amount entered on the tax forms - which form and line?
Where are my SELF EMPLOYED employer contributions to my RETIREMENT PLAN reported on my TAXES?
Does the Employer Contribution to a Solo 401k get entered on Schedule C (1040) (Solo Proprietorship) Line 19 (under expenses)?
So if I’m just starting as self employed now In 2022, I can’t actually fund my retirement account until 2023 bc only then will I know my net income for the year.
Actually I could invest the 19500 from the employee portion my question above is around the profit sharing employer portion.
You are correct in your thinking. That is exactly how I do it.
How will pandemic unemployment for self employed workers be viewed as far as net income goes and contributions go?
It’s not earned income so you can’t contribute to a retirement plan with it but it will be taxes as income.
@@TravisSickle thank you! Been searching all over for the answer
C Corp has solo 401K. Suppose total compensation is $100,000, and elective 401K contribution is $15,000. Should W-2 box 1 be $100,000, or $85,000?
85
is 56000 limit is for married filing jointly ? I am a self employed and can contribute upto 56K. I also have wife who has full time job and does 19.5K in 401k and post-tax contribution (mega back door IRA). My question - is 56000 for each person or for a married couple filling jointly?
I have same question. Not sure you found the answer
Each
Also, what If my line 31 is NEGATIVE. CAN I STILL MAKE A CONTRIBUTION FOR SOLO OR SEP?
No, unfortunately.
@@TravisSickle oh okay...
What if I make 20k..and put 19,500 into solo account would that work?
100 owner LLC
hi, thanks what the form number for this deduction worksheet for self employee?
Publication 560.
www.irs.gov/pub/irs-pdf/p560.pdf
@@TravisSickle thanks so much
Correct me if I am wrong but I believe your math is off. The deductible self-employment tax should be $7,650 not &7,065. 1/2 of 15.3% is 7.65. If you have a net profit of $100K that should be $7,650 dollars.
No, it’s the same rate but the math is different. I’ve done it on a few videos.
I have an LLC but i do not operate any business, can i still start a 401k in addition to my Roth IRA to maximize my retirement funds for a cushy life?
No, you need earned income from the business to contribute.
@@TravisSickle ok, so i plan on purchasing an apartment abroad and renting it. I can take the earnings from that and then open the 401k then yes?
do i need to do it with my income tax or separate?
Not sure what you mean.
Do you have a video like this for S-CORP???
S-Corp doesn’t have this complicated formula. It’s employee side up to 19500 and employer match up to 25% match.
@@TravisSickle. So by year end when we start to fill out the W2/W3 with Social Security, do we put $26000 (19500+6500) in box #12 with code D, and check Mark box 13 for Retirement plan? (BTW, do my own payroll ).
I would not recommend doing payroll on your own. Check description for payroll provider we use. But yes, that’s right.
@@TravisSickle
Payroll is quite easy. It’s repetitive month after month. The Federal and State withholdings are what you want it to be.
2021 is a bit different for me because of the self employed health insurance and the solo401K. After watching these great videos on YT, I think I’m an expert on W2/W3. 😆
Now...where’s that SECURE Act video link? ;)
ruclips.net/video/3JnGn4CtyV0/видео.html
i got sep last year. would i still be able to do solo 401k this year?
possibly.
Phenomenal video. I had a quick follow-up question on deducting the 401k contribution (which you briefly mentioned at the end of the video). Let's say you're a 1099 employee with gross earnings of $110,000 and deductible expenses of $10,000. So you have a net profit of $100,000 (as in the video). We calculate $18,587 as the profit sharing contribution. Is that $18,587 now deductible from the $100,000, giving a net profit of $81,413 for the purposes of calculating income tax? Assuming no other contributions to a 401k or 403b. Hope that is clear! Thanks for any thoughts you have!
Yes
I don’t remember if I said this in the video but you could get more into the 401k at lower amounts if you file as s-corp
@@TravisSickle Thanks for the reply! Good to know that the contribution helps to reduce taxable income. But it does doesn't help to reduce our self-employment tax, right? You would still pay 15.3% of $100,000 in self-employment tax, not 15.3% of the $81,413? Sorry for the follow-up for the follow-up!
Correct, which isn’t the worst thing since it will increase social security. If you file as s-Corp you can avoid SE tax by taking distributions instead of income.
@Travis - great video! A couple clarification questions on this thread…
Once I find the max employer contribution, I put that on Line 14 of Schedule C right? That then further reduces net profit right, which would make the calculation iterative, or how does that work?
On the $19.5K employee contribution for 2021, is the limit actually a percentage of net profit or is it the max of $19.5K or net profit? If I’m contributing to a traditional individual 401K, shouldn’t the $19.5K also reduce my taxable income somewhere? Where on the Form 1040 do I record the $19.5K?
Thanks!
Is there a link to this worksheet somewhere? Thanks. Very helpful video.
www.irs.gov/pub/irs-prior/p560--2019.pdf
Page 22
Thank you so much
I've been researching this for months and I hope I can provide some insight to further coincide with this video. You can contribute 2x to your retirement as a 1099 employee, once as an employee (In 2021, 19,500 max which would be the lesser of your annual compensation OR 25% of said compensation, in my case roughly 14,250 from 57k ((estimated profit))) THEN once again as an employer as the video describes, in my case the 2nd part would be roughly 12,081.55 for a total of 31,581.55) I don't really understand the 20% you mention vs. 25% that the IRS mentions but I assume it has something to do with some portion of SE tax calculating as a deduction?
The importance of this deduction is reducing your overall taxable income at the end of the year. If I make 100k from W-2 sources and 65k from 1099 sources, this allows me to pay less income taxes as it puts me in a lower tax bracket, defers paying taxes on 31,581.55 until I retire, of which saves me more money currently, while also investing in my future. Rare case in life in which you win, win, and win. Also, this is why it's better (in my case anyways) not to go S-Corp as you get more deductions this way. I just hope I do my math right because every CPA I've talked to either doesn't have knowledge in the specifics of my situation or wants over 1k up front in order to handle it while not telling me their plan.
Yes, that 20% for schedule C filers is a reduction for SE Tax. It's because that net profit is after your business expenses but technically the employer contribution is a business expense but based on net profit.
Most CPA's I have met don't deal with retirement plans or don't understand them well. There certainly may be come competent CPA's but that's not been my experience.
An S-Corp in some cases can help you control your taxes more and reduce SE taxes.
@@TravisSickle Hi Travis. Great concise video. Do you have a video on the S-corp vs- Sole Proprietor regarding taxes. (SE and Fed). My thinking is also a S corp would reduce SE tx, but the cost of managing a Scorp/ accountants etc worth it? My goal is to pay less to gov and more to retirement.
@@TravisSickle yeah I was told that because I want to max out all my retirement I have to pay my self a higher salary which would reduce the benefits of going Scorp.
Awesome break down. Yeah I am researching too. Thanks. Most CPA don’t understand retirement which is odd to me.