Self-employed Solo 401K Contribution limits

Submitted by David Ridell on Sat, 2018-10-20 18:26

Can someone answer the below questions……. based on the following facts:

self employed in a single-member LLC
over age 50
have Solo 401-K plan
Solo 401-K Plan provides for Employee deferrals into a ROTH 401K account (I’m ignoring Employer-portion 401k for now)
2018 net self employed earnings (Schedule C less 1/2 of SE Tax) will be below $18,500 (current ROTH 401K deferral cap)
Have qualifying health insurance premiums of $10,000

========================
1. What is the “Employee Deferral” ROTH 401-K contribution limit, $18,500 or capped at Net SE earnings (see #5 above)?
2. Can I still make the $6,000 ROTH IRA “catch up” contribution for over age 50? Or is that limited by Net SE earnings also?
3. If I have self-employed health insurance deductions on Form 1040-line 28, does that affect/reduce the answers to the above questions?
3A. I am wondering if my net SE earnings are 15,000, for example, and I have $10,000 in health insurance does that “limit” my ROTH 401-K contribution and/or catch-up?
4. Can I make an IRA contribution?

PS-I read somewhere on-line that:
because ROTH contributions are non-deductible, they do not affect the computation of (a) the self-employed health insurance deduction or (b) “earnings” for 401K and IRA purposes
catch-up contributions are “not subject” to the “100%-of-earnings” limitation
=========================



Submitted by William Tuttle on Sat, 2018-10-20 19:07

  1. The employee elective contribution limit is 100% of compensation not to exceed the 402b limit (2018 = $18,500). Self-employment compensation = net self-employment earnings (business profit – 1/2 SE tax). If compensation is <= $18,500, the contribution limit = compensation.
  2. IRA contributions require compensation. A Roth 401k contribution does not reduce compensation. If you are >= age 50, the contribution + catch-up = $6,500.
  3. Self-employed health insurance deduction (SEHID) is on Form 1040 line 29, pre-tax one participant 401k contributions are on line 28. Technically, pre-tax 401k employee/employer contributions may limit SEHID, not the other way around. However, since a plain deduction is better that a pre-tax contribution/deduction, such contributions should be limited to allow the full SEHID. If your net self-employment earnings are $15K, you can make $15K in Roth 401k contributions and $10K in a SEHID. If you made $10K in Roth 401k contributions and $5K in 401k employee deferrals, you could still take a SEHID of $10K. If you made $15K in 401k employee deferrals, you  would be limited to a SEHID $0.
  4. As long as you make no more than $8,500 in pre-tax employee/employer 401k contributions your can make $6,500 in IRA contributions.
  5. The 401k catch-up contribution is not subject to the 100% of compensation limitation. With $15K of net self-employment earnings, you can make a $15K employee elective contribution and a $6K catch-up contribution for a total of $21K.
  6. However, the $1K IRA catch-up contribution does require compensation. You still need $6,500 in compensation to make the $5,500 IRA contribution + $1K catch-up contributions

Add new comment

Log in or register to post comments