Excess Contributions to an i401k including Roth i401k (solo 401k)
Sarah Brenner, JD, recently discussed excess IRA contributions in The Slott Report, dated June 6, 2022.
Do the same rules regarding earned income apply for an i401k (including Roth i401K)?
Many advisors recommend making retirement contributions at the start of the year in January, but particularly in the COVID era, by the end of the year, a sole proprietor with a solo 401K may have sustained a loss on their Schedule C. If the same rules apply as discussed in the June 6, 2022, issue of The Slott Report, they might have an excess contribution in both their IRA and i401k.
Sarah Brenner, JD, also stated, “While you can use a spouse’s taxable compensation to fund your IRA, you may not use many other different income sources including Social Security, pension, rental, and investment income.” Ed Slott strongly recommends doing Roth conversions. Would the amount converted (reported as a distribution on a 1099-R) be considered earned income?
Permalink Submitted by Alan - IRA critic on Fri, 2022-06-17 22:55
Permalink Submitted by Herbert Goldman on Fri, 2022-06-17 23:29
Can contributions be made to an i401k (including a Roth i401k) if there is a net loss on the Schedule C?
Permalink Submitted by David Mertz on Sat, 2022-06-18 00:24
No. With no net profit the sole proprietor has no compensation from which to make an individual 401(k) contribution. The contribution cannot exceed net earnings. Net earnings are net profit minus the deductible portion of self-employment taxes.