E*Trade Solo 401k - Employee vs Employer Contributions

[Invest_Wisely]

I recently started a new small business as a sole proprietor and opened an E*Trade individual (Solo) 401k. Upon opening the account, I called E*Trade to inquire how funding the account works - specifically, how to distinguish between an employee contribution and employer contribution. Their response is that all contributions are considered employer contributions and in order to move employer contributions to employee contributions, I would need to call them.

Has anyone else funded a Solo 401k with E*Trade? Has this been your experience with them and what's your process for funding the employee portion of your individual 401k? Thanks.

[jello_nailer]

Not sure it matters. If you're a sole proprietor you and "the company" are the same. I do this will my LLC, single member. I do my "EE" and "ER" contributions by tax year, but its really all my money so the "ER" contribution is just to make me feel good.

[Invest_Wisely]

Not sure it matters. If you're a sole proprietor you and "the company" are the same. I do this will my LLC, single member. I do my "EE" and "ER" contributions by tax year, but its really all my money so the "ER" contribution is just to make me feel good.

Doesn't it matter for tax purposes or does the IRS not need to know the contributions for each individually? I plan to max out both the employee and employer contributions for this tax year.

[Lee_WSP]

https://www.irs.gov/retirement-plans/on ... 401k-plans

Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
$20,500 in 2022 ($19,500 in 2020 and 2021), or $27,000 in 2022 ($26,000 in 2020 and 2021) if age 50 or over; plus
Employer nonelective contributions up to:
25% of compensation as defined by the plan, or
for self-employed individuals, see disc

[HomeStretch]

… Doesn't it matter for tax purposes or does the IRS not need to know the contributions for each individually? …

It does not matter how E-Trade classifies plan contributions (i.e., as Employ/EE and/or Employ/ER). E-Trade does not report the contribution classification to the IRS.

You (and not E-Trade) are the Solo 401k Plan Administrator. You as Plan Administrator are responsible for, among other things, calculating allowable E/EE and E/ER contributions. If the plan assets at December 31 are $250k+, you are required to file a Form 5500-EZ which does require breakout of Plan contributions between E/EE and E/ER.

[illumination]

FWIW, my Solo 401k at Schwab, they ask this question when I make a deposit and I designate which it is. I had a "mess" when they mixed it up one year and took a while for them to correct on their end as it would be an over contribution on the elective "employee" contribution. So I would think it matters how it's designated, but maybe that is just internal and not something that is given to the IRS on their end?

Also, I was looking at opening a Solo 401k at E*Trade, almost exclusively because they had a Roth 401k option (but now I'm hearing that's ending?).
The E Trade reps were giving me a lot of wrong information to the point I just didn't want to move forward. So I would take everything they give you with a grain of salt and confirm elsewhere if there's any gray areas.

[HomeStretch]

… Also, I was looking at opening a Solo 401k at E*Trade, almost exclusively because they had a Roth 401k option (but now I'm hearing that's ending?). …

E-Trade sent an email this week saying their Solo 401k plan was amended effective immediately to no longer allow after-tax contributions. Roth employee elective deferrals are still allowed.