BACKGROUND & QUESTIONS
I have run payroll for $51,000 through my LLC.
I have allocated $9000 for the employee contribution and the same was reflected in my w2.
Now I am planning for an employer contribution, which is 25% of the W2 income $51,000, that calculates to $12,750. Now I can fund my solo 401k retirement account with $12,750, right? If so how should I report this in my tax return to claim deductions? I get below screen in Turbo-Tax, what field should I fill in?
Reporting contributions made to a self-directed solo 401k plan on the TurboTax software is quite confusing and requires filling our multiple fields as covered below. For this reason, most self-employed individuals who make contributions to their solo 401k don’t use the Turbotax software but rather fill out the paper tax forms.
Pretax Employee solo 401k contributions also known as “elective deferrals” are reported in the box labeled “elective deferrals.” Do not list your Roth solo 401k or voluntary after-tax solo 401k contributions in this section since they are not tax deductible (i.e., do not reduce your taxable income) but list them in the next section if you did make Roth solo 401k contributions.
This is also an employee contribution but for some reason TurboTax likes to split it up. “Catch-up contributions” can only be made if the solo 401k participant was age 50 or older.
Treating the Employee & the Catch-up Contribution as Roth Solo 401k Contributions
You will see above that TurboTax has separate fields for reporting Roth solo 401k contributions. Report the employee contribution (a.k.a. elective deferrals) amount made as a Roth solo 401k contribution in this box, and report the catch-up contribution if you qualify (i.e., you are age 50 or older) in this box.
Profit Sharing Contributions
Employer pretax solo 401k contributions are also known as “profit shirring” and Turbotax also refers to them as “employer matching” contributions. If your self-employed business entity type is an S-corp., C-corp. or an LLC taxed as an S-corp., this is the filed where the 25% of your gross W-2 wages figure is listed.
Voluntary After-Tax Solo 401k Contributions
Lastly, you will see that TurboTax does not provide a box for reporting voluntary after-tax solo 401k contributions. The reason is most likely because voluntary after-tax contribution are reported in box 14 of Form W-2 if your self-employed business entity type is an S-corp., C-corp. or an LLC taxed as an S-corp. For sole proprietorships and partnerships, voluntary after-tax solo 401k contributions are also NOT reported on any tax return including your personal Form 1040 tax return. Instead, they get reported in box 5 of on Form 1099-R.