Solo 401K and Roth 401K contribution limit in 2020

Submitted by Lillian Shao on Thu, 2020-12-03 03:10

For employee: solo 401K $26000 or Roth 401K $26000 if >50 years
For employer: 25% of the compensation in solo 401K
Combined contribution limit: $63500
It is correct?



Submitted by Alan - IRA critic on Thu, 2020-12-03 14:31

  • Employee elective deferrals up to 26,000 total between pre tax or Roth, but not more than 100% of compensation, or 100% of earned income if self employed. 
  • Employer contribution up to 25% of compensation as defined by the plan, or if self employed  25% of net earnings from SE after deducting 1/2 of the SE tax and your own contribution (same as for SEP IRA contribution).
  • Overall total contribution dollar limit 63,500.

Submitted by Lillian Shao on Fri, 2020-12-04 15:52

Does the employer contribution have to be made in the ROTH 401K account, or the individual 401K account, or the SEP IRA account, or any account? 

Submitted by Alan - IRA critic on Fri, 2020-12-04 17:10

The solo K here consists of two sub accounts, the pre tax and Roth. The employer contribution cannot be made to the Roth sub account, and therefore must be made entirely to the pre tax account. The employee contributions (technically elective deferrals) can be made in any combination between the pre tax and Roth sub accounts, but cannot exceed 26,000.

Submitted by Lillian Shao on Thu, 2020-12-24 19:15

I heard a CPA on weekend radio 710AM “FINANCIAL QUARTERBACK” mentioned that solo 401K employer contribution limit can be dollar to dollar of your earnings, what does that mean? If you make $30000, can you contribute $30000?

Submitted by William Tuttle on Fri, 2020-12-25 00:40

401k employee deferrals can be up to 100% of self-employed earned income (business profit – 1/2 SE tax), but only up to the employee deferral limit (2020 = $19.5K) – any other employee deferrals to other plans.

Submitted by Lillian Shao on Tue, 2020-12-29 05:20

Solo 401K employee deferral is upto 100% of self-employed earned income. Is the limit $26000? How much is the employer deferral/contribution limit? Is it also 100% of self-employed earned income? 

Submitted by William Tuttle on Tue, 2020-12-29 14:46

  • Self-employed one-participant 401k contributions are limited to self-employed earned income = business profit – 1/2 SE tax.
  • Employee deferrals are limited to 100% of compensation up to the employee deferral limit, 2020 = $19.5K.
  • An individual >= age 50 may make catch-up contributions (2020 = $6.5K) after the employee deferral limit is reached.
  • Employer contributions are limited to 25% of compensation.
  • However, self-employed employer contributions are not compensation and the contribution itself reduces compensation. Therefore, self-employed employer contributions are calculated as 20% of self-employed earned income.
  • Self-employed employer contributions are also  limited to (self-employed earned income – employee contributions except catch-up contributions) / 2.
  • Technically, there is no 2020 $63.5K limit. Catch-up contributions are simply not included in the annual addition limit, 2020 = $57K. E.g. If the employee deferrals are not maximized, no catch-up contributions can be made and the limit is $57K.
  • See IRS Publication 560, Chapter 5 and the Deduction Worksheet for Self-Employed.

Submitted by William Tuttle on Tue, 2020-12-29 15:11

  • It is very important to not just use rules of thumb. You should use tax software and/or Schedule C, Schedule SE and the Deduction Worksheet for Self-Employed in IRS Publication 560, Chapter 5.
  • Examples if you have $30K in self-employed earned income = business profit (Schedule C) – 1/2 SE tax (Schedule SE).
  • No catch-up contribution: $19.5K employee deferral + $6K calculated employer contribution, but limited to ($30K – $19.5K = $10.5K) / 2 = $5,250. Total contribution = $19.5K + $5,250 = $24,750.
  • Catch-up contribution: $19.5K employee deferral + $6.5K catch-up contribution + $6K calculated employer contribution, but limited to ($30K – $19.5K – $6.5K = $4K. Total contribution = $19.5K + $6.5K + $4K = $30K.

Submitted by Lillian Shao on Fri, 2021-04-30 21:11

Is the contribution deadline for Solo 401K plan (self-employed one person LLC) May 17, 2021 for 2020 Tax Year, the tax filing deadline for both employee and employer? 

Submitted by Alan - IRA critic on Fri, 2021-04-30 21:36

Yes, 5/17 but with extensions would be the extended date, which is 10/15 for for a single member LLC that does not elect to be treated as a corporation.

Submitted by Lillian Shao on Sat, 2021-05-01 05:22

What is the reporting requirement for Solo 401K and Roth 401K account? Is it correct that you only need to report when the account value is more than $250,000? Is Form 5500 EZ to be used for reporting? Are there any reporting requirement for Roth 401K as it is after tax money? 

Submitted by William Tuttle on Sat, 2021-05-01 14:00

Roth 401k contributions like Roth IRA contributions are not reported on Form 1040 unless claiming the retirement savings credit.
If required, employee deferrals (pre-tax traditional and post-tax Roth) and employee after-tax contributions are all reported on Form 5500-EZ as Participant contributions.

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