Roth Individual/Solo 401(k) contributions
Hi,
For self employed clients that make employee and/or employer Roth contributions into their individual/solo Roth 401(k) plans, do those contributions need to be noted anywhere on the person’s tax return? Or are those not noted anywhere since their is no associated tax deduction for the employee/employer.
Permalink Submitted by William Tuttle on Sat, 2024-02-24 02:50
Roth 401k employee deferrals are not directly reported on a tax return for a self-employed individual. However, if meeting the AGI requirement, they could be used for the Saver’s Credit.
While the IRS released Notice 2024-2 on 12/20/23. This notice by Q&A addressed certain characteristics of SECURE Act 2.0 Section 604 (Roth Employer contributions). All of them were for W-2 employees. None were fore self-employed individuals. For W-2 employees, Roth employer contributions will be reported on a Form 1099-R, with no income tax withholding or FICA taxes.
The deadline for adopting SECURE Act 2.0 401k plan amendments is 12/31/2026.
One-participant plan providers may or may not adopt these amendment for 2024.
It is likely premature to worry about how these might be reported on especially self-employed tax returns.
Permalink Submitted by David Mertz on Sat, 2024-02-24 13:09
Notice 2024-2 describes Roth employer contributions as a contribution to the traditional account followed immediately by an In-plan Roth Rollover. New instructions for Form 1099-R were released on 02/22/24 that indicate that Roth employer contributions are to be reported unconditionally on Form 1099-R as an IRR. To be consistent with these instructions and to avoid double taxation of the Roth employer contribution, a self-employed individual would have to take a self-employed retirement deduction for the Roth employer contribution to offset the income reported on the Form 1099-R, the same as they would with a non-Roth employer contribution.
The self-employed retirement deduction and the taxable income from the Form 1099-R would be on different year’s tax returns for Roth employer contributions made the after the end of the calendar year. For example, for an employer Roth contribution for 2024 is made in 2025, the 2024 Schedule 1 would show this included on line 16 but the income from the code-G 2025 Form 1099-R would be on line 5b of the 2025 Form 1040.