Can the “employer” contribution to a solo401k be in 2023 for income earned in 2022 or does it have to be made the same year? The account is already open.
Also, to confirm, it’s a max of 25% of gross earned after half of SE taxes are subtracted from gross earned, correct?
Thanks!
Employer contribution can be made until tax day.
> Also, to confirm, it’s a max of 25% of gross earned after half of SE taxes are subtracted from gross earned, correct?
No. It’s from adjusted net profit, not revenue. You also need to subtract the contribution itself. So it ends up being 20% max.
Net profit = revenue – expenses = line 31 on Schedule C.
Adjusted net profit = net profit – deductible portion of SE tax.
For 401k and also for IRA purposes, adjusted net profit is compensation.
There is also a lesser known limit on employer contribution if you have employee contribution to the same plan: 50% x (adjusted net profit – employee contribution)
You may find these links helpful:
– [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds)
– [401(k) FAQs](/r/personalfinance/wiki/401k)
– [“How to handle $”](/r/personalfinance/wiki/commontopics)
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