Do both participants have to contribute to the Solo 401k plan?
No. You may participate in a Solo 401k plan without making contributions.
What happens if I over-contribute?
The consequences of an over contribution differ if you remove the excess contribution before or after tax day of the following year. If you over contribute to a retirement plan, the IRS recommends you withdraw those contributions from the plan. Taking a distribution from the 401k. The overage you remove from the plan is included in your gross income for the year it was contributed to the 401k. Any interest earned on those funds are taxed in the year the funds are removed.Example: You over contribute $1,000 in 2019. You remove the overage and interest by tax day – April 15, 2020. However, any interest earned on those funds is taxable on your 2020 return. If you over contribute and remove the funds after tax day of the following year, the penalties are greater. Unfortunately, an excess contribution where funds are removed after tax day you’ll essentially pay taxes twice on those funds. Example: You over contribute $1,000 in 2019. You remove the overage and interest July 1st, 2020. You will pay tax on the excess contributions for 2019, even though you didn’t take the money out. Additionally, you’ll pay tax on the amount once it is withdrawn from the retirement account. The more you over contribute, the bigger the tax hit. Find your ballpark contribution figure with the Solo 401k Contribution Calculator. Always work with your CPA to determine your exact contribution amount.
Can I contribute more than the maximum in profit-sharing contributions if I have another business?
Yes. The IRS Overall 415 limit means you can contribute $57,000 per participant, per year, per plan. Put simply, if you have two businesses, or two different 401k plans, you can max out both. Example: You have a single-member LLC consulting business with a Solo 401k plan. You also work a “regular” job and contribute to your regular job 401k. Let’s imagine you put in $10,000 in employee salary deferral contributions to your regular job 401k plan and the employer matches 3% (an addition $3,000 per year). This brings your total contributions to your regular job 401k plan to $13,000 per year. In your Solo 401k, you can still contribute the remaining $9,500 to get you to the max employee salary deferral limit of $19,500. But let’s assume your consulting business has an amazing year and you earn $250,000 in net compensation as shown on your schedule C. You would be able to make the entire $57,000 contribution to the Solo 401k based on your net compensation, in addition to the $13,000 you already contributed to your regular job 401k. That’s a hefty tax deductible contribution!
Does the Solo 401k also allow Roth Contributions?
Yes, the Solo 401k by Nabers Group automatically includes a Roth sub-account and allows for Roth contributions.
Do my Roth 401k contribution have to come from earned income too?
Yes, all contributions including Roth contributions must come from earned income from your business.
Can I contribute to a Solo 401k if I work a regular job with a regular 401k?
Yes, you can contribute to multiple 401k plans at the same time.
Do I have to contribute every month/quarter/year to the Solo 401k?
No, the Solo 401k by Nabers Group offers you the flexibility to contribute on your scheduled. You may contribute on any schedule and in any amount (following IRS maximums) of your choosing.
How do I document a tax-deductible contribution on my tax return?
Where you document your tax-deductible contribution depends on your business structure. Solo proprietorships, single member LLCs and partnerships will deduct your contribution from your tax return on IRS form 1040. A corporation will deduct the Solo 401k contribution on the corporate tax return.
Can I contribute more than I make to the Solo 401k?
No, your contribution limits are based on what you’re earning in your business. You cannot contribute more than you earn, but you can contribute a large chunk of what you earn to get more money into your Solo 401k plan.
Are Roth contributions the same as voluntary after-tax contributions?
No, Roth contributions are a type of after-tax contribution, but not all after-tax contributions are Roth. Click here to learn more about Voluntary after-tax contributions.