How to calculate Solo 401K employer portion of contribution and deadlines

[Bibimbap]

Hi,

I'm having a hard time figuring out how much I can contribute as an employer to my Solo 401K. Is there a calculator that can do this for me?
Also, various websites give me different deadlines. Some say that the employee portion contribution deadline for 2020 was December 31, 2020 and employer portion deadline is April 15, 2021. Others say that a deadline for both is April 15, 2021.  How can I find out what it really is. I can't even find this on IRS' website, or I maybe I don't know what I'm looking for as all I'm finding is SEP and other plans but not Solo or Individual 401K.

Can someone help me out?

Thank you

[dbfire]

Fidelity had a super simple online tool for years that they literally just nerfed a few months ago. The link I used to use was replaced with this spreadsheet. It's still relatively straightforward and IMO more simple than some of the other online calculators out there, but maybe someone else on the boards will have a better tool or link for you.

https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/customer-service/401k-self-employed-owner-only-business.pdf

The deadline question is not one I feel confident answering.

[Bibimbap]

Fidelity had a super simple online tool for years that they literally just nerfed a few months ago. The link I used to use was replaced with this spreadsheet. It's still relatively straightforward and IMO more simple than some of the other online calculators out there, but maybe someone else on the boards will have a better tool or link for you.

https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/customer-service/401k-self-employed-owner-only-business.pdf

The deadline question is not one I feel confident answering.

Thank you!

[Bibimbap]

Fidelity had a super simple online tool for years that they literally just nerfed a few months ago. The link I used to use was replaced with this spreadsheet. It's still relatively straightforward and IMO more simple than some of the other online calculators out there, but maybe someone else on the boards will have a better tool or link for you.

https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/customer-service/401k-self-employed-owner-only-business.pdf

The deadline question is not one I feel confident answering.

I don't understand this form. When I put all the numbers in, it tells me that I can contribute $0 as an employer. How is that possible?

[terran]

The deadline to make contributions as both employee and employer is your tax filing deadline (~4/15) including extensions (~10/15), however you need to declare your employee contributions by 12/31 of the year for which you're contributing. The declaration is only kept in your records, not reported anywhere, but if the plan wasn't opened by 12/31 you obviously couldn't have made the declaration, so I'd only suggest making employee contributions if your plan was opened in 2020.

The Deduction Worksheet for Self-Employed in Publication 560 is the official way to calculate the contribution limits. It's not too hard to create a spreadsheet that completes the worksheet for you if you just go through step by step to set it up for each calculation.

Here's another good calculator that I've found to be accurate: https://obliviousinvestor.com/solo-401k-contribution-calculator/

"Profit from Business" in that calculator and Step 1 in the Publication 560 worksheet should both come from line 31 of Schedule C.

[Bibimbap]

The deadline to make contributions as both employee and employer is your tax filing deadline (~4/15) including extensions (~10/15), however you need to declare your employee contributions by 12/31 of the year for which you're contributing. The declaration is only kept in your records, not reported anywhere, but if the plan wasn't opened by 12/31 you obviously couldn't have made the declaration, so I'd only suggest making employee contributions if your plan was opened in 2020.

The Deduction Worksheet for Self-Employed in Publication 560 is the official way to calculate the contribution limits. It's not too hard to create a spreadsheet that completes the worksheet for you if you just go through step by step to set it up for each calculation.

Here's another good calculator that I've found to be accurate: https://obliviousinvestor.com/solo-401k-contribution-calculator/

"Profit from Business" in that calculator and Step 1 in the Publication 560 worksheet should both come from line 31 of Schedule C.

Thanks terran. Unfortunately, I just opened the solo 401K, so I can't contribute as an employee, and according to the calculator you posted I'm allowed $0 contribution as an employer :(. I'm puzzled as to why, but I tried 2 different calculators and I'm getting the same results so that must be correct.

[dandarc]

The calculators are figuring the maximum amount theoretically, assuming you've done everything in advance. You have a special situation, so you need to figure with your actual number of $0 for employee deferral. Also appears that you have a fairly low amount of Schedule C income, hence the way you'd maximize in a perfect world is to just call the whole contribution "employee" and call it a day. But you're doing this after the fact, so that's not an option.
 
In this unusual situation, I'd fill out the worksheet in Publication 560 by hand as terran notes - be sure and enter "0" on step 9 for employee deferral. Really isn't that hard of a worksheet, so just do this by hand.

Also we're assuming you're being taxed as a sole proprietor and not some other type of entity.

[dandarc]

Actually you only have to go through step 7 it sounds like - steps 9-20 are entirely dependent on having employee deferrals which you don't have, and it sounds like you also won't be over the $57K limit either, so whatever you get at step 7 is the number. So quite simple.

Alternative or a way to check your math - look for a SEP-IRA calculator online - I believe that will give you the number you want. I think that should match the "employer-only" SoloK limit.

[dandarc]

Such as this one, which actually computes maximus for all 4 major types of self-employed retirement plan. "Maximum Profit Sharing" = Maximum employer contribution to individual 401K

https://sepira.com/calculator.html

[terran]

Yeah, something strange seems to be going on if you keep getting a $0 contribution. What is line 31 on your schedule C? Did you have income from a W2 job?

[Bibimbap]

Actually you only have to go through step 7 it sounds like - steps 9-20 are entirely dependent on having employee deferrals which you don't have, and it sounds like you also won't be over the $57K limit either, so whatever you get at step 7 is the number. So quite simple.

Alternative or a way to check your math - look for a SEP-IRA calculator online - I believe that will give you the number you want. I think that should match the "employer-only" SoloK limit.

I tried doing it by hand but I have no idea what to put on line 4. I look at the Rate table for self employed and I have no idea what what the plan contribution rate is, how do I know this?

[Bibimbap]

Such as this one, which actually computes maximus for all 4 major types of self-employed retirement plan. "Maximum Profit Sharing" = Maximum employer contribution to individual 401K

https://sepira.com/calculator.html

This calculator says that my Maximum Profit Sharing contribution is $2416.32.

[Bibimbap]

Yeah, something strange seems to be going on if you keep getting a $0 contribution. What is line 31 on your schedule C? Did you have income from a W2 job?

Line 31 in schedule C is $13081. I don't have W2 job.

[terran]

Yeah, something strange seems to be going on if you keep getting a $0 contribution. What is line 31 on your schedule C? Did you have income from a W2 job?

Line 31 in schedule C is $13081. I don't have W2 job.

Ah, that's the problem then. The calculators are assuming you'll make the whole contribution as an employer contribution since your total income is below that. If you filled out the worksheet I linked to with $0 entered as the employee contribution you'd get the right answer.

You can "trick" the calculator I linked to into giving you the right answer by telling it you had a job and that you contributed $19,500 to that 401(k). Do this I get an employer contribution of $2,431.

Consider whether you should be contributing though. Do you have other income (Roth conversions or capital gains, for example)? You might owe very little if any tax even without the contribution.

[Bibimbap]

Yeah, something strange seems to be going on if you keep getting a $0 contribution. What is line 31 on your schedule C? Did you have income from a W2 job?

Line 31 in schedule C is $13081. I don't have W2 job.

Ah, that's the problem then. The calculators are assuming you'll make the whole contribution as an employer contribution since your total income is below that. If you filled out the worksheet I linked to with $0 entered as the employee contribution you'd get the right answer.

You can "trick" the calculator I linked to into giving you the right answer by telling it you had a job and that you contributed $19,500 to that 401(k). Do this I get an employer contribution of $2,431.

Consider whether you should be contributing though. Do you have other income (Roth conversions or capital gains, for example)? You might owe very little if any tax even without the contribution.

I'm puzzled why a calculator would assume that. Ok, so I trick the calculator and I also get $2431 and it also says that I can do $6500 catch up contribution since I'm over 50, is that right? Can do a catch up contribution as an employer?
I can't fill out the worksheet because I have no idea what to put on line 4. I look at the Rate table for self employed and I have no idea what the plan contribution rate is, how do I know this?

I have unemployment income and I'm filing MFJ, so owe quite a bit actually.

[terran]

The ability to open a solo 401(k) after December 31st at all is a new thing within the last few years and people who have done so is kind of an edge case since it only applies the first year, so I expect the calculator author just decided it wasn't worth customizing and option for that.

Catch up contributions are employee contributions, so no, you wouldn't be able to make this this year either since you can't have declared them in time.

The highest value Step 4 can be is 20%, so just use that. It's kind of silly, but it's just that the max profit share percentage for a solo 401(k) is 25%, but you can't make a profit share contribution on the profit share contribution. The table below the worksheet is just solving for the equation X/(1+X) where X is the desired contribution percentage. Assuming you want to max the contribution just use 20% and you don't need to worry about that though.

Make sure you exclude $10,200 of your unemployment income per the stimulus bill passed Thursday if your total AGI is under $150k. It might take some time for tax software to catch up with this.

[Bibimbap]

The ability to open a solo 401(k) after December 31st at all is a new thing within the last few years and people who have done so is kind of an edge case since it only applies the first year, so I expect the calculator author just decided it wasn't worth customizing and option for that.

Catch up contributions are employee contributions, so no, you wouldn't be able to make this this year either since you can't have declared them in time.

The highest value Step 4 can be is 20%, so just use that. It's kind of silly, but it's just that the max profit share percentage for a solo 401(k) is 25%, but you can't make a profit share contribution on the profit share contribution. The table below the worksheet is just solving for the equation X/(1+X) where X is the desired contribution percentage. Assuming you want to max the contribution just use 20% and you don't need to worry about that though.

Make sure you exclude $10,200 of your unemployment income per the stimulus bill passed Thursday if your total AGI is under $150k. It might take some time for tax software to catch up with this.

Thanks, all makes sense now but I thought that $10,200 of unemployment income wasn't taxable for 2021 is it really for 2020?

[terran]

2020, I haven't heard anything about 2021: https://www.irs.gov/faqs/irs-procedures/forms-publications/new-exclusion-of-up-to-10200-of-unemployment-compensation

[Bibimbap]

2020, I haven't heard anything about 2021: https://www.irs.gov/faqs/irs-procedures/forms-publications/new-exclusion-of-up-to-10200-of-unemployment-compensation

thanks, in this case I don't even need to contribute to the solo 401K, it now looks like I'm getting a refund, both federal and state. Thank you so much for helping me and pointing this out.