ForumsSolo 401k ContributionsNew Sole Proprietor Solo 401K Contribution with W2 401k

Forums Solo 401k Solo 401k Contributions New Sole Proprietor Solo 401K Contribution with W2 401k

  • New Sole Proprietor Solo 401K Contribution with W2 401k

    George Blower replied 1 month, 3 weeks ago 2 Members · 4 Posts
  • 3 Replies
  • Top SubjectSolo 401k Contributions
    Top ForumsSolo 401k Contributions

    Vincent F.
    Top SubjectSolo 401k Contributions

    February 26, 2024 at 2:15 pm

    A little confused with all the amounts and the 3 separate accounts where I use Fidelity after the Non Prototype Accounts opened with mysolo401k before 12/31/23.

    I put ~$6702 in my Vanguard Employer 401k in 2023.

    I’m trying to figure out how to fund the various account: Pre-tax, after tax and Roth. I just crossed 50 so I can put the catch up amount in as well.

    Since I have $30000 for 2023 (minus $6702): After tax account: $23298.

    I’m not sure how to fund the other accounts and what I would be eligible to contribute for the employee side of things (sole proprietorship 2023 revenues >$300k). And how does one do Megaback door ROTH? What paperwork (if any) would be needed for my 2023 taxes?

    Guess, I also can start thinking about 2024 contributions as well.

    Would appreciate any insights on maxing out the amounts and the most efficient ways.

    TIA.

    Vincent F.
  • George Blower

    Top SubjectDaily Live Webinar,Solo 401k
    Top ForumsDaily Live Webinar, Solo 401k

    George Blower

    George Blower

    Top SubjectDaily Live Webinar,Solo 401k

    February 29, 2024 at 2:26 am

    Thank you for your good post!

    If one has a solo 401k plan like our plan that allows for Voluntary After-tax contributions (Mega Backdoor Roth) (and many clients choose to restate a pre-existing basic plan at a discount brokerage like Vanguard, Fidelity, Schwab, etc to take advantage of this feature), one can make such Voluntary After-tax contributions and then transfer the funds to either a Roth Solo 401k so that they have chance to grow tax-free (learn more:Mega Backdoor Roth Solo 401k (In-Plan Roth 401k Conversion) – My Solo 401k Financial).

    The ability to contribute to the solo 401k is based self-employment compensation which for a business taxed as a sole proprietor (with income reported on Schedule C), self-employment compensation is equal to Line 31 of Schedule C less one-half of the self-employment tax.

    Of this amount one can contribute 100% of self-employment compensation up to $23,000 for 2024 (plus an additional $7500 if 50 or older) as an employee contribution (reduced by any contributions made to another plan such as a “day job” 401k).

    One can make an employer contribution to the Solo 401k equal to 20% of self-employment compensation provided that the sum of all contributions made to the Solo 401k (including employee, employer and/or voluntary after-tax don’t exceed the overall limit (e.g. $69,000 for 2024)) – note that contributions made to a plan sponsored by an unrelated employer (e.g. “day job” 401k) don’t reduce how much one can contribute to the Solo 401k unless made to a 403b.

    Finally, one can contribute 100% of self-employment compensation to the solo 401k as a voluntary after-tax contribution provided that the sum of all contributions made to the solo 401k (including employee, employer and/or voluntary after-tax don’t exceed the overall limit (e.g. $69,000 for 2024)) – note that contributions made to a plan sponsored by an unrelated employer (e.g. “day job” 401k) don’t reduce how much one can contribute to the Solo 401k unless made to a 403b.

    One may certainly begin to make 2024 solo 401k contributions but will simply want to be certain that they will report the self-employment income for 2024 when they file their taxes next year to justify the contribution.

    • Top SubjectSolo 401k Contributions
      Top ForumsSolo 401k Contributions

      Vincent F.
      Top SubjectSolo 401k Contributions

      February 29, 2024 at 12:31 pm

      Mahalo for the insight.

      To summarize: my work 401k $6702 contribution does not affect my solo 401k contribution amounts.

      2023: $73500 total solo 401k (over 50)

      Using Fidelity non-protype accounts:

      Pre-Tax: $30000

      After-tax: $43500

      Roth: backdoor the $43500

      and I am still able to contribute $7500 for 2023 to individual IRA and the backdoor ROTH that as well?

      TIA.

      Vincent F.
      • George Blower

        Top SubjectDaily Live Webinar,Solo 401k
        Top ForumsDaily Live Webinar, Solo 401k

        George Blower

        George Blower

        Top SubjectDaily Live Webinar,Solo 401k

        March 1, 2024 at 2:15 am

        Thanks for your good questons!

        1) Per my comment above: contributions to “day job” 401k do reduce how much one can contribute as an employee contribution to the Solo 401k but don’t reduce how much one can contribute as an employer or after-tax. For example, if one makes the maximum employee contribution to the “day job” 401k such person can’t make any mor employee contributions to the Solo 401k but if they have the self-employment income to justify it they can make employer and/or after-tax contributions to the solo 401k up to the overall limit.

        2) Making contributions to a Solo 401k won’t reduce one’s ability to make contributions to an IRA (and vice versa). Of course, one must have income to justify such contributions (e.g. if one contributions 100% of their self-employment compensation to the Solo 401k and has no other earned income (even other than self-employment income) such person may not be able to justify contributions to an IRA because one can’t use the same self-employment compensation to justify contributions to both a Solo 401k and an IRA).

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