Author Topic: Bookkeeping for Solo Roth 401K Contributions  (Read 911 times)

JenniferW

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Bookkeeping for Solo Roth 401K Contributions
« on: February 12, 2019, 03:22:26 PM »
I know there several here that have a Solo 401k w/ their sole proprietorship.  Do any of you do your own bookkeeping? I do my own bookkeeping and have a question, maybe someone can help me :

I just setup a Solo Roth 401K plan with Vanguard, for my single participant sole proprietorship.

I understand I should be linking my business checking account to Vanguard instead of personal checking account since the contribution is made by the employer login on Vanguard.

Before the retirement account, the way I got money out of my business books was to DEBIT "Owner's Draw" equity account and CREDIT my business checking account -- transferring the money from business checking to personal checking.

So what account should I use since I don't want to do an Owner's Draw anymore? -- I want to put every cent I can into the 401k. Should I create a new equity account called "Roth 401k Contributions" ? I'd then DEBIT that account and CREDIT business checking for each contribution -- transferring the contribution from business checking to Vanguard Roth Solo 401k account.

Much Fishing to Do

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Re: Bookkeeping for Solo Roth 401K Contributions
« Reply #1 on: February 13, 2019, 05:17:51 AM »
I file as an S Corp now so my payroll, taxes, contributions etc are all just expenses, so don't exactly remember and prob can't wrap my head around this one completely as I had someone doing my taxes, etc, but here would be a guess to consider?:  I think I treated it as another kind/subset of owner draw (given not an expense, but coming from the company checking acct), so yes, for easy tracking I would basically set up another equity acct as you state, understanding when working with these accts that one is substantively another kind of owner draw for most purposes.

JenniferW

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Re: Bookkeeping for Solo Roth 401K Contributions
« Reply #2 on: February 13, 2019, 09:07:22 AM »
Yeah that's what I was thinking too.  Trying to verify with more people.  I asked on a couple other forums as well.  Thanks for your reply.

MTBmustachian

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Re: Bookkeeping for Solo Roth 401K Contributions
« Reply #3 on: February 13, 2019, 10:20:56 AM »
Interested to hear what responses you get!

I'm new to the whole sole proprietorship thing, but am in a similar boat. I setup a SEP IRA for myself.

Interestingly, there is quite a big difference for tax purposes between a SEP IRA and the account you're talking about (Roth), as a normal IRA would be pre-tax payment and would reduce my total taxable income, vs Roth which is post.

I filed my own taxes this year using Turbo Tax, and I think in there they just had a screen you could record a SEP contribution, and then they would adjust your taxable income accordingly. So, I'm going to just add another ledger in Quickbooks to record my SEP contributions, then input them on that screen in Turbo Tax come tax time next year.

Not sure how big a deal it is to make sure the withdrawal is labeled a certain way?

harvestbook

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Re: Bookkeeping for Solo Roth 401K Contributions
« Reply #4 on: February 13, 2019, 05:31:41 PM »
Not really sure I understand why you need multiple accounts. Wife and I were an S-Corp with solo 401Ks and I only had one account--business checking. I simply withdrew from business checking to the 401k as the employer contribution (25 percent match). Our employee contribution was tracked via our CPA's payroll service but I transferred the amounts myself. The amounts were right there in our business checking account records as withdrawals.

Telecaster

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Re: Bookkeeping for Solo Roth 401K Contributions
« Reply #5 on: February 13, 2019, 06:26:07 PM »
So what account should I use since I don't want to do an Owner's Draw anymore? -- I want to put every cent I can into the 401k. Should I create a new equity account called "Roth 401k Contributions" ? I'd then DEBIT that account and CREDIT business checking for each contribution -- transferring the contribution from business checking to Vanguard Roth Solo 401k account.

I just make 401(K) contributions directly from my business checking. 

JenniferW

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Re: Bookkeeping for Solo Roth 401K Contributions
« Reply #6 on: February 13, 2019, 10:27:27 PM »
When I say new account, I mean with respect to double entry bookkeeping.   Equity, Income and Expense accounts in double entry bookkeeping (like Quickbooks, GnuCash etc) can be thought of as "categories" in quicken.  The "Asset" class of accounts is where all the bank accounts reside within double entry bookkeeping.

I'd make the contribution from my business checking account.  As far as bookkeeping, I'd CREDIT Assets:Current Assets:Bank:Checking and DEBIT Equity:Solo Roth 401K Contributions account .. I am thinking anyways.
« Last Edit: February 13, 2019, 10:29:38 PM by JenniferW »