Making Year 2023 Annual Solo 401k Contributions-Pretax, Roth and Voluntary After-Tax (a.k.a. mega backdoor) - My Solo 401k Financial (2024)

What’s New Regarding Solo 401k contributions for Tax Year 2023?

With the passage ofSECURE 2.0 Acton December 29, 2022, the employer/profit sharing contribution can now also be applied as a Roth solo 401k contribution or can continue to be made as pretax contribution.

The Roth solo 401k contributions can now be applied as employee and/or or employer contributions. However, the catch-up contribution for those aged 50 or older can only be made from the employee contribution source and can be applied as pretax or Roth solo 401k contribution.Therefore, if age 50 or older in2022the employee Roth solo 401k contribution is $27,000 ($20, 500 + $6,500).For 2023, if you are aged 50 or older, the employee Roth solo 401k contribution increased to $30,000 ($22,500 + $7,500)

General Information regarding Making Year 2023 Solo 401k Contributions:

You do not report your contributions to My Solo 401(k) Financial. While solo 401k contributions are accounted for by depositing them into the solo 401k bank or brokerage account, they are reported on your personal and business tax return.

NET INCOME:Solo401kcontributionsarebasednet-incomefromself-employment (i.e. you can’t contribute more than you make).

Business or Personal Bank Account: You can make thecontributionsfromyour business or personal checking account as long as the funds stemfromself-employmentincome.

2023 Contribution Limit:The totalcontributionlimit for tax year2023increased to $66,000. The additional catchup amount for those age 50 or older also increased to $7,500. Thus, if you are age 50 or older, the 2023 total solo 401k contribution amount is $73,500

For 2022, the total contribution limit was $61,000 or $67,500 if age 50 or older.

Making Contributions:To make thecontribution, you will make the check payable in the name of thesolo401kand write “AnnualContribution” on the memo section of the check.

Periodic or Lump Sum:Solo 401k contributions can be made periodically or in one lump sum.

Solo 401k Contribution Calculator

You can use our on-line solo 401k contribution calculator to calculate the contribution amount.CLICK HERE.

You may also use the online annualcontributionform located on our website to internally document thecontribution. This form is for your records only.

https://www.mysolo401k.net/wp-content/uploads/2014/09/Solo_401k_Annual_Contribution_Form.pdf

Video Slides:

Additional information regarding thesolo401kcontributionrules.

Solo401kContributions

The business owner acts in both capacities in asolo401kplan: employee and employer. As such, the business owner can make bothcontributiontypes: employee and employer. (Note:Matchingcontributionsdonotapply to aSolo401kplan).

Type 1Contribution(Employee):Employeecontributionsalso known as elective deferrals up to 100% ofnetearningsfromself-employmentincomeup to the annualcontributionlimit;Note:See information below regarding how to determineyourself-employmentincomeforcontributionpurposes since it depends on how yourself-employed business is organized (e.g. sole proprietor, S-Corp, etc.).

2023:$22,500plusan additional $7,500 catch-upcontributionif youare50 or older.

Note:If theSolo401kparticipant is participating in another qualified plan such as a401kplan offered through a w-2 “day job,” any employeecontributionsmade by the individual to such plan will be aggregated with any employeecontributionsmade to theSolo401kplan in determining whether the limit has been met.

Type 2Contribution(Employer):Employer profit sharingcontributionsup to:

• If taxed as an unincorporated business (e.g., sole proprietor or partnership) then 20% ofnetbusinessincome (i.e.fromLine 31 on Schedule C or Line 14 of K-1 as applicable) after deducting one-half ofself-employmenttax; or
• If taxed as a corporation, then 25% of w-2income.

Multiple Participants

Note:For asolo401kwith multiple participants (e.g. husband and wife), the employee & employercontributionlimitsarecalculated for each participant individually (i.e.,basedon each person’sself-employmentincome).

TotalContributions: Total contributions to a solo 401k plan cannot exceed $66,000 for2023, plus an additional catch-up amount of $7,500 if age 50 or older.

See more regarding making voluntary after-tax contributions below.

IMPORTANT:The annual solo 401k contribution limits depend on the type of entity sponsoring the solo 401k plan.

• If the entity type is aSole Proprietor, it is equal to line 31 ofSchedule C(after deducting one-half ofself-employmenttax).
• If the entity type is aC-Corporation, it is equal toW-2income from your self-employed business (“Box 1 plus any pre-tax elective deferrals NOT in Box 1).
• If the entity type is anS–Corporation, it is equal toW-2income from your self-employed business (“Box 1 plus any pre-tax elective deferrals NOT in Box 1).
• If the entity type is aPartnership, it is equalK-1 (Form 1065)line 14from your self-employed business(after deducting one-half ofself-employmenttax).

Note: To determine the amount equal to one-half of the self-employment tax, please take the following steps:

• Navigate to our online calculator:VISIT HERE.
• For Business Type: select “Unincorporated Sole Proprietorship”
• Enter your net income as applicable (e.g. for a Sole Proprietor enter net income from line 31; for a Partnership enter Line 14 from your K-1).
• Enter your age
• Click “View Report”
• In the sentence beginning “*Calculated as net business income…” the amount equal to one-half of the self-employment tax will appear in the phrase “Self-Employment Tax of ___”

Solo401kContributionDeadlines:

Theself-directed401kcontributiondeadlinesarebasedon the type of entity sponsoring thesolo401k.

• If the entity type is aSole Proprietorship, the annualsolo401kcontributiondeadline is April 15, or October 15 if tax return extension is timely filed.
• If the entity type is anLLCtaxed as an S-Corporation (calendar year), the annual solo401k contribution deadline is March 15, or September 16 if tax return extension is timely filed.
• If the entity type is anLLCtaxed as a Partnership(calendar year), the annualsolo401kcontributiondeadline is March 15, or September 16 if tax return extension istimelyfiled.
• If the entity type is aPartnership(calendar year), the annualsolo401kcontributiondeadline is March 15, or September16 if tax return extension istimelyfiled.
• If the entity type is anS-Corporation(calendar year), the annualsolo401kcontributiondeadline is March 15, or September 16 if tax return extension istimelyfiled.
• If the entity type is anC-Corporation(calendar year), the annualsolo401kcontributiondeadline is April 15, or September 16 if tax return extension istimelyfiled.

Making Voluntary After-TaxContributions

What is the maximum amount of voluntary after-taxcontributionsthat I can make?

You can contribute up to the lesser of (i) 100% of your self-employment compensation (i.e. see below information regarding how to determine your self-employment compensation) or (ii) the overall limit ($66,000 for 2023 contributions)reduced byany pre-tax or Roth employeecontributions/salary deferrals and any pre-tax employer/profit sharingcontributions.

The amount of self-employment compensation depends on the type of entity sponsoring thesolo401kplan[SEE ABOVE].

When is the deadline to make voluntary after-taxcontributions?

Theself-directed401kcontributiondeadlinesarebasedon the type of entity sponsoring thesolo401k.[SEE ABOVE].

How do I make the voluntary after-taxcontributions?

• To make thecontribution, you will make the check payable in the name of thesolo401kand write “AnnualContribution” on the memo section of the check.
• Deposit the amount of the voluntary after-taxcontributions that you elect to make in the separate voluntary after-tax sub-account.
• You will then transfer the funds to the Roth sub-account for theSolo401k. Please let us know right away when you do so that we can send you the applicable forms to capture the information that we need to handle the required 1099-r (which we will do as part of our services for no additional charge).

Where do I report the voluntary after-taxcontributions?

• For self-employment income reported on a w-2, you may (but are not required to) report voluntary after-taxcontributions in Box 14 of the w-2.
• For all others, there is no place to report voluntary after-taxcontributions.

Where do I report the conversion of funds form the voluntary after-tax sub-account to the Roth sub-account?

• A Form 1099-R is used to report the conversion to the IRS.
• On Form 1040, report the amount converted in Line 5a and “0” in Line 4b unless there is a taxable gain. If there is a taxable gain, enter the gain amount. Finally, enter the word “Rollover” next to line 4b.
• A taxable gain would result if the funds in the after-tax account accrued a gain after beingcontributed to such account in which case the amount of such gain is a taxable and needs to be listed on Line 16b.

2023 & 2024 Solo 401k Contribution Guides-Deep Dive

Sole Proprietorship, Independent Contractor, Schedule C, LLC Taxed as Sole Proprietorship, 1099-NEC Independent Contractor

• Slides:Deep Dive 2023 and 2024 Solo 401k Contributions for Sole Proprietor/Schedule C/Contractor/LLC taxed as Sole Proprietorship
• Video:https://www.youtube.com/live/HTHNP085M1k?si=XTaaMCmXFSS2cLH7
• https://www.mysolo401k.net/solo-401k-calculating-solo-401k-contributions-sole-proprietor/

S-corp., C-corp., LLC Taxed as S-corp., W-2

• Slides:S-corporations, C-corporations, LLC taxed as S-corp./C-corp., W2
• Video:https://www.youtube.com/live/g3vs9sTmzqs?si=SleRrR0izUHTJ46L
• https://www.mysolo401k.net/corporation-calculating-solo-401k-contributions-corporation/

Partnership, LLC Taxed as Partnership (Form 1065-K)

• Slides:Partnership, Multi-Member LLC (Form 1065 K-1)
• Video:https://www.youtube.com/live/Y_DgUfAzb5o?si=UOg0t–okyyMgaEj
• https://www.mysolo401k.net/solo-401k/solo-401k-contribution-partnership-compensation/

2023 & 2024 Mega Backdoor Roth Solo 401k Guides- Deep Dive

Partnerships, LLC taxed as Partnership

• Slides:Partnerships, LLC taxed as Partnership, Form 1065 Schedule K-1
• Video:https://www.youtube.com/live/sccs3vYR0hs?si=1U3x60caTr6PVzfk

S-corp., C-corp., LLC taxed as S-corp., W-2

• Slides:Mega Backdoor Roth Solo 401k Deep Dive (S-corp., C-corp., LLC taxed as S-corp, W-2)
• Video:https://www.youtube.com/live/ze83X_4NbKc?si=81UD-vTicL78zW9C

Sole Proprietorship, Singe Member LLC or 1099-MISC NECT Contractor

• Slides:2023-2024 Mega Backdoor Roth Solo 401k Contribution Guide (sole proprietorship, single-member LLC or 1099-MISCNEC Independent Contractor)
• Video:https://www.youtube.com/live/DF52jvgdqRs?si=4QWjAU4bvTeoEnKk

Guides 2023 & 2024-How Much Income Do I need to Max Out Solo 401k Contributions?

S-corp., C-corp., LLC taxed as S-corp., W-2

• For Slides, CLICK HERE
• For Video, CLICK HERE

Sole Proprietorship, Singe Member LLC or 1099-MISC NECT Contractor

• For Slides, CLICK HERE
• For Video, CLICK HERE

Partnerships, LLC taxed as Partnership

• For Slides, CLICK HERE
• For Video, CLICK HERE

Conversions Limit QUESTION:

Convert Voluntary After-Tax Contributions in 2023 made for 202 and 2023 QUESTION

Solely Make Voluntary After-Tax Contributions QUESTION

Make Employee Solo 401k Contributions for 2023 in 2024 QUESTION