Solo 401k and earned income.

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ultraviolet
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Joined: Tue Feb 21, 2017 10:32 am

Solo 401k and earned income.

Post by ultraviolet » Sun Nov 10, 2019 5:22 pm

What is earned income? Is earned income before or after business deductions? Say I earned 200k but have 75k in business deductions. For the purposes of 401k profit sharing contributions, is my earned income 125k or 200k?

123
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Re: Solo 401k and earned income.

Post by 123 » Sun Nov 10, 2019 5:28 pm

For a self-employer person earned income is net earnings (after expenses) from self-employment. Net earnings is the net profit (if any) shown on Schedule C.
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HomeStretch
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Re: Solo 401k and earned income.

Post by HomeStretch » Sun Nov 10, 2019 5:44 pm

When calculating the amount of net earnings from self-employment for purposes of determining the maximum amount that can be contributed to a Solo 401k as employer deferrals and employer profit-sharing, your net self-employment income is reduced by the employer portion of self-employment taxes.

https://www.irs.gov/publications/p560
See the worksheet in chapter 5.

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RickBoglehead
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Re: Solo 401k and earned income.

Post by RickBoglehead » Sun Nov 10, 2019 5:54 pm

Right. Both.
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Topic Author
ultraviolet
Posts: 68
Joined: Tue Feb 21, 2017 10:32 am

Re: Solo 401k and earned income.

Post by ultraviolet » Sun Nov 10, 2019 6:56 pm

Ok so if I want to make the max employer contributions I need to make 185,000. 37k is 20% of 185,000. To that 185k I would have to add half of my self employment taxes and deductions. Is this right?

jacoavlu
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Re: Solo 401k and earned income.

Post by jacoavlu » Sun Nov 10, 2019 7:05 pm


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