QUESTION:
What income can I use to calculate my contribution limit for a solo 401K? I do get 1099-NEC for my LLC. I can use that income. However, I also get 1099-MISC to my SSN for my investment. Can I use that as well to calculate my contribution limit? Thanks!
ANSWER:
The source of self-employment income for solo 401k contributions purposes depends on how our self-employed business is taxed. For example, for an S-corp., C-corp. or an LLC taxed as an S-corp. or C-corp., contributions will be based on each owner-employees W-2 wages from the self-employed business. For a partnership or an LLC taxed as a partnership, solo 401k contributions will be based on each partner’s line 14 Code A of Schedule K-1. For a sole proprietorship or an LLC taxed as a sole proprietorship, annual solo 401k contributions are based on line 31 of Form Schedule C.
Solo 401k owners can use the net income from their self-employment LLC, which is reported on line 31 of Schedule C, to calculate their contribution limit for a solo 401k. This income typically comes from 1099-NEC forms issued to the LLC. However, income from investments reported on 1099-MISC forms issued to the owner’s SSN cannot be used to calculate the solo 401k contribution limit (unless such income ends up being reported on Schedule C and you would need to work with a tax advisor to determine where to report such income).The solo 401k contribution limit is based solely on the income earned from self-employment activities. Investment income is not considered self-employment income for the purposes of solo 401k contributions.
Additional Resources
- Calculate Contribution for Sole Proprietor
- Calculate Contribution for Partnership
- Calculate Contribution for Corporation
- Online Solo 401k Contribution Calculator
- Reporting Solo 401k Contributions
- Contribution Deadlines
