I have a full time job and I have a side business. I established a self-employed 401(k) plan, also known as a solo 401k plan or an individual 401k plan, for my side business. This allows me to shelter a little bit more money for retirement from my self-employment income. Every bit helps, you know?
When I tried to figure out how much I can contribute from my self-employment income to the solo 401k, I found that the information on the Internet assumes that the self-employment income is the person’s only earned income. For example the calculation worksheets provided by Fidelity, Schwab, and Vanguard all make that assumption. They don’t consider the cases like me who work at a day job while earning some self-employment income on the side.
Because I participate in the 401k plan at work, the maximum I can contribute to my solo 401k plan changes with what I earn from my day job and what I contribute to the workplace 401k plan. The Social Security tax I pay depends on the sum of my salary as an employee and my self-employment income. The salary deferral contributions I can make from self-employment income also depends on how much I already contribute to my 401k plan at my day job.
I would think there are enough consultants, freelancers, moonlighters, and bloggers who are in the same camp as I am, but there is very little resource I could find for people who earn their income from a mix of W-2 salary and self-employment.
You know where this is going to lead to, don’t you? I had to create a spreadsheet for myself and I’m sharing it here in case other people like me find it helpful.
Spreadsheet: Solo 401k For Part-Time Self-Employment
This spreadsheet takes into account employment income, contributions to workplace 401k, and self-employment income. It calculates the maximum salary deferral contribution and the maximum profit sharing contribution I can make to my solo 401k plan.
If there is no day job, just set the day job related fields to zero and it will work for people who only have self-employment income as well. There are two tabs: one for an unincorporated business (sole proprietorship), the other for an incorporated business. As usual, use this and everything you find on this blog at your own risk, because I’m not a CPA.
I’m going to use Fidelity for my plan because I already have other accounts with them and their plan is free and flexible. Vanguard is going to offer a plan but it looks like they don’t allow incoming rollovers and there is no brokerage option.
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Matt says
Was wondering why I hadn’t seen this issue addressed in any of the personal finance blogs I read. Nice job filling the void! This is very helpful.
Matt
frugalchick says
Yes, I agree with Matt. Thanks for filling the void. I’ve been looking for this info for quite a while now with no success. Thanks!
Alex Benke @ MoneyMerc says
Hi TFB, was very excited to see your spreadsheet, I thought I was the only one who created crazy things like this. I created one earlier in the year for a similar purpose (day job + part time job with solo 401k). My goal, however, is to maximize contributions in my solo 401k, since I have full freedom of investment choices there. Granted, it makes a bigger difference once you have more self employment income (I’m contributing 100% this year to my solo 401k, which is almost maxing it out) The OTHER wrinkle, though, is my day-job employer offers a match up to 5% of my contribution. So my goals are to maximize that match first, then the solo-k to the extent of self employment income, and then fill out up to my 15.5k overall limit. Like you, I’m not a CPA – but using your #s your calc’s check out with mine 😉
http://sheet.zoho.com/public/abenke/2008-retirement-contributions-planning-web
Harry Sit says
Alex – Thank you for cross-checking the calculations. There’s a slight difference between your spreadsheet and mine. Using the default numbers, if you make the employee salary deferral $743.48, then the maximum employer profit sharing is only $92.94. You can’t make the full 20% profit sharing contribution because it has to be no more than one half of the “Adjusted Net Business Profit after Elective Salary Deferral” (line 6 in Schwab’s worksheet). If you want to keep the 20% profit sharing, then the employee salary deferral to solo 401k has to be no more than $557.61.
Bob says
Great work TFB! I have been looking for something like this for a while.
Susan says
Thank you so much. I have been laboring over the Fidelity worksheet but wasn’t entirely sure it was correct, since I also fall into the part-time category you outline. Your worksheet is a whole lot easier…and the numbers came out the same — even better! Thanks!
Brad says
Why do a solo 401k, when you could just do a SEP-IRA instead. You can put away even more in a SEP-IRA than a 401k, without all the administration headaches, etc.
You can put away up about $49,000 (25% of $196,000)… Something like that.
I suppose if your income is such that you want to put away $16,500 (in 2009) into a 401k, but you make less than 4x or 5x that (25% or 20%), then possibly the headaches of a 401k would be worthwhile.
I don’t think there is any limitation of SEP-IRAs if you are also covered at work (but maybe I’m wrong about that, in which case, you’re right–and never mind! 😉
Cheers,
Brad
Harry Sit says
Brad – No you cannot put away even more in a SEP-IRA than a solo 401k. At most you can contribute the *same* amount in a SEP-IRA, but not more.
The limit on the employer profit sharing side is exactly the same between SEP-IRA and solo 401k. There is no salary deferral in a SEP-IRA, while there is salary deferral on top of employer profit sharing in a solo 401k. That’s the difference.
If you max out 401k at work, SEP-IRA and solo 401k give you the same maximum. If your work 401k isn’t that great, you can get the match and do the rest in your own solo 401k. You don’t have that option with a SEP-IRA. In addition, you cannot use a SEP-IRA as a safe haven for your other IRA money for the purpose of converting to Roth IRA in 2010 and thereafter.
Brad says
Right you are. I assumed the limit on a solo (individual) 401k was the same $16.5k as for a corporate 401k. But they’re different. A “corporate” is really a W-2 401k, then you can also contribute 20% or 25% on top of that. So as you say, a solo or individual 401k allows even higher contributions if you have both a W-2 and a proprietorship/Sched C business (if you want to do the paperwork–though SEP paperwork isn’t that simple either, but in both cases a trustee like Schwab or whoever does most of the work for you).
Thanks for the info!
john czerwonka says
OK. I’m not a techie guy, so I apologize for what might seem like a “dumb” question. I’ve found the spreadsheet to calculate a solo 401-K contribution and it’s very helpful. However, I can’t figure out how to save it or print it on my computer. If I use the file save, and try to open it’s unreadable. And, if I simply use file/print it only prints half the page. I subscribed to Zoho (whatever that is) hoping it would allow me to save and print the spreadsheet, but I have no idea how to do that. Can any one help?
DAVID NEWMAN says
hI john czerwonka
I JUST USED MY PRINT OPTION IN MY BROWER
Academic says
Fantastic post. As an academic, I contribute to both my 403(b) and 457. I also have some self-employed income from part-time consultancy, so I recently opened a solo 401(k).
If I’m not mistaken, the 403(b) and 401(k) are pooled together for the purpose of the deferral limit, and the 457 is separate.
So if I got the numbers right, one can potentially defer $16,500 (for the 457) plus $49,000 (401k + 403b) for a total of $65,500.
And the 50+ crowd can potentially defer an additional $5,500 on their 457 for a grand total of a $71,000. WOW!
MTXB says
Please excuse my ignorance here but you’d need to set up Solo 401k ONLY if you have non-deductible IRA and traditional IRA (401k rollover) together. You don’t need to set up solo 401k if you ONLY have traditional IRA (401k rollover from previous job)?
catlady says
Possibly dumb question, but I cannot find an answer anywhere.
What if you work part-time and are not eligible for the 401K at work at all, but you also have freelance work on the side.
Now, let’s say the freelance work does not make much more than a pittance (~1,100 gross per year, on average, with some years better).
If you open a Solo 401K, could you use some of your wages from the part-time job to fund it? Or can you only use your earnings (gross or net) from the freelance work to fund it?
Again, not eligible for 401K at “day job.” But would like to use some “day job” wages to help fund the Solo 401K for the freelance work. Possible?
catlady says
Never mind. I think I get it now. The max. to the solo 401K is only from self-employment income. I can use an IRA (traditional) to save on taxes/save for retirement from my part-time job (for which I am not 401K eligible).
sep 401k student says
Trying to decide if the Sep 401k plan is the best option for me. Very much appreciate the information I always find here.
Zee says
Love the worksheet…how do I get it to print? File/Print doesn’t work.
Will says
This is a great worksheet – wish I had found it sooner! Does this mean I can’t contribute in the first year when my part-time business doesn’t show a profit? I understood that I could contribute under the salary deferal even if the net business profit was zero…
Harry Sit says
Will – It depends on how your business is structured. If it’s a C-Corp or S-Corp and you are getting a salary, you can contribute as an employee from the salary, and the business can also contribute up to 25% of that salary. If it’s a sole prop, the contribution is only based on net business earnings.
Will says
TFB – thanks for the info! I guess I’ll have to deal with an inadvertent over-contribution now. Ooops.
SS says
TFB, Hate to dig up this old thread, but I think this spreadsheet might no longer be accurate for 2011 (and possibly 2010). The reason is that the employer portion of the SE tax is 7.65 while the employee portion is 5.65, because of the reduction in SS tax. So, wouldn’t the half of SE tax need to be recalculated? Or am I off base here. I can’t believe this is this hard to figure out!
Harry Sit says
SS – I fixed it.
Will says
TFB – Shouldn’t the max profit sharing on line 31 be adjustable too? Or is that not self-determined? I thought you could contribute up to 25%. How is line 31 calculated?
Harry Sit says
Will – The maximum is just that, the maximum allowed by law. You can contribute less than the maximum if you’d like.
KS says
I’m having trouble with the spreadsheet, getting a $0 amount for profit sharing, if I put any number less than $22,000 in line 20.
Is this because if I contribute less than allowed to my day job 401k I SHOULD not do any profit sharing contribution, or is it because I CAN NOT do profit sharing.
I plan to open a solo 401k this year based on a small sole proprietorship income. But I also max out my employer’s 401k, and my income is above the SS wage base.
I was under the impression that I could still make a profit sharing contribution to myself as long as I had net profit.
Harry Sit says
KS – If you are under 50, set line 17 to 0. If you are not maxing out your day job 401k, the spreadsheet first allocates the allowable contributions as employee contribution to the solo 401k. It’s possible to prioritize employer contribution over employee contribution but when you are both the employer and the employee, whether it’s employee contribution or employer contribution doesn’t really matter much.
KS says
I submitted the paperwork to open an solo 401k with fidelity, and today I see online a new account called “profit sharing keogh”. The representative said this was their solo 401k, but he was reading from a script, and he was clearly very new. I didn’t have time yet to call again, but I will send them an email.
tfb, did you have the same experience with fidelity? I was able to find one other person on the web who had the same “keogh” experience and was concerned they were different than a solo401k, , but it did not mention the outcome/resolution.
KS
Harry Sit says
KS – Don’t worry; that’s the one. Keogh is a name for any plan for the self-employed. Your 401k plan is a profit sharing plan with a salary deferral (401k) feature. So “Profit Sharing Keogh” is actually an accurate description. You can rename the account to anything you want. Go to the account history page, then click on the “Name This Account” link.
KS says
thanks tfb, the fidelity rep was less than confident about his answer, but it makes sense. And thanks for the tip about renaming the account, I didn’t realize I could do that, but then again, have never had a reason to. 🙂
SM says
TFB – thanks so much for this SS. I am starting my solo 401(k) plan today and came across this when trying to determine maximum amounts to contribute and this helps simplify things a TON. From what I understand, a spouse/partner can also contribute to the solo 401(k) if they earn income from the side-business. Would it be possible to add that calculation in and show what the most effective salary distribution should be to maximize tax deferral , as an option for people who have spouses (mine is not employed at all) and are looking to reach the maximum deferral? Thanks again for providing such a great resource!!
Andy says
This is helpful thanks. Yes, I think this is an issue many people are dealing with, if things were more clear perhaps even more people would use Solo 401k. One other issue worth noting is the Roth/non-roth solo 401k balance. It looks like you can only go with Roth for the Salary Deferral part. It’s nice to have both a Roth and Non-roth solo401k so that you can control your taxable income and thus your cash flow around April 15 (and of course better plan for your future tax burden).
I don’t really get the technology behind the spreadsheet. I can’t see the formulas. Is this user error or by design? Backwards engineering based on value is no fun. Helpful if it were MS Excel.
Thanks again.
Harry Sit says
Andy – It’s true you can only do Roth for employee contributions. Employer contributions must stay traditional. However I’m not a big fan of Roth 401k. See my post The Case Against Roth 401(k). If you have a decent amount of income, I think the traditional 401k still works better.
Protecting the formulas is by design.
Rommel says
I’m wondering why the computed ‘Maximum Salary Deferral from self-employment’ is zero regardless of whatever amount you place under Net Business Profit from self-employment. Is this the ideal setup, especially if your self-employment income is minimal?
Harry says
Rommel – The maximum salary deferral, i.e. the employe contribution will be zero if you are already maxing it out at the day job (cell B20 for unincorporated or B15 for incorporated). Whether it’s the ideal setup depends on your goal. It’s ideal for me.
Choy says
I’m not sure if the spreadsheet is wrong or if I’m misunderstanding something. Is the maximum employee deferral per year $17,000 (2012) for an employer 401k and solo 401k COMBINED? From my understanding, it is.
The spreadsheet however, gives me $5,000 salary deferral under the summary header when I enter $50,000 gross wages, $17,000 contribution to employer plan and $10,000 for side business income.
I definitely agree that there should be more resources on the internet for people in situations like ourselves. Thanks for writing this post!
Harry says
Choy – If you are under 50, the line for age 50+ catch-up contribution should be set to zero. I see it’s easily missed. I will make a change to make it clearer.
Harry says
I added a question for “age 50 or over” yes/no.
Choy says
Ah, stupid me for not reading the spreadsheet properly. Thanks for this resource again, much appreciated.
Self Employed Tax Calculator says
Thank you so much. Nice job filling the void! This is very helpful.
Raghu says
Harry
This is a really really useful calculation! This not only useful for part-timers. It is very relevant for me since I left job in mid-2012 and I started Solo 401K. So I have a W-2 (with 401K savings) from my previous job and earnings from self-employment. Just few thoughts to make it better (again, just my 2 cents, worth) –
1. In Line 19, when you refer to “Gross wages”, it might help if you are referring to Box 1 or Box 3/Box 5 of the W-2. I am assuming you meant Box 3/Box 5 since you will be calculating payroll taxes and you do not want to include the 401K savings.
2. I am probably missing something simple, but why are you calculating “20% of Line 29” as Maximum contribution. I thought the maximum was 25% ? EDIT – It is 20% for a Single member LLC. Got it!!
Thanks again. This is an excellent resource!
Harry says
Raghu – That would be Box 5, your income before 401k contributions.
Raghu says
Harry,
I am not sure if I am doing something wrong but in your calculator, line 28 is exactly half of the total self-employment but shouldn’t you just deduct the employer-portion (which isn’t exactly half in 2012). That might throw off the numbers a bit. You will deduct more (since employer’s share of SE axes are more in 2012) bringing the total profit smaller (line 31) and the total Solo 401K contribution slightly smaller.
Since I will be contributing less than what is calculated here, I am not too worried but I thought it would be a good academic exercise for me to ask.
Am I missing something else?
Thanks again.
Harry says
Raghu – Good catch. That 2% payroll tax holiday throws a few things off. For 2012, it should be 59.6% of the Social Security tax plus half of the Medicare tax. Then in 2013 it goes back to half and half. I’ll fix it right now!
Nanelle says
The spread sheet is amazing and the questions and answers are helpful too!
Tara says
Thank you so much for this.
Felix says
Thanks for this great tool. Been using it for years.
However, for those of us over 50, I believe the salary deferral limit should be $23,000, not $24,000, derived from $17,500 + the over-50 catch-up of $5,500 (not $6,500… the latter is the IRA limit for those 50+), for a total of $23,000. Thoughts?
Harry says
Where do you see $24,000? I just tried the spreadsheet, setting 401k contribution at day job to zero and age 50 and up to yes. I get the maximum salary deferral at $23,000.
Felix says
Thanks Harry. Now I see $23,000 as well. Must be my bad.
JR says
This is a very useful spreadsheet. Thank you. However, I think there may be a bug? It seems to ignore the “yes” or “no” entered in line 21 when calculating the total amount you can contribute. If the self employment income is high enough (say, $300,000), it calculates the total amount you can contribute as $57,500 whether you enter yes or no. I believe it is only $52,000 (for 2014) if you are under 50?
Harry Sit says
Thank you JR. I fixed it. While I was at it, I also updated the limits for 2014.
Ben says
Great resource, thanks. Quick question, in the box “net business profit from self-employment” should I subtract my solo 401k contributions? So if I make $30,000 (after other expenses) and contribute $10,000 to solo 401k is my net business profit $20,000 or still $30,000? Thanks again.
Harry Sit says
Still $30,000.
Ben says
Ok, thanks. I see it on the spreadsheet now. So the 20% profit sharing (sole proprietorship) is based on that $30,000 as well?
Doesn’t look like solo 401k contributions reduce self-employment tax, but obviously would lower my overall taxable income… trying to wrap my mind around all this.
Thanks for everything you’re doing on this site!
Harry Sit says
It’s based on $30,000 minus 1/2 of self-employment tax but capped to 50% of (that number minus the employee’s elective deferral). For example if the net profit minus 1/2 of self-employment tax is $27,500 and you are contributing $17,500 as the employee, the 20% employer profit sharing is capped to 50% of (27,500 – 17,500), which is $5,000, not quite 20% of $27,500.
Solo 401k contributions do not reduce self-employment tax. It’s same if you work as a regular W-2 employee. Your contributions don’t reduce your Social Security and Medicare taxes. The employer’s match or profit sharing contributions also don’t reduce its half of the Social Security and Medicare taxes.
JR says
Another question. Let’s say you max out your 401k at work ($17,500 for 2014) AND your self-employment income is high enough (say $300k). The spreadsheet indicates that you can also put $52k in the solo 401k. Is that correct? I thought the total max allowed in both is $52k (for 2014), but the spreadsheet indicates that you can put a total of $69,500 away.
Harry Sit says
The $52k is per unrelated employer.
Mark says
Harry,
I found and tried your spreadsheet after wrangling with this myself after reading Pub 560 for 2014.
Like you, I am not a CPA, nor do I consider or sell myself as an income tax or 401k expert. However, based on my reading of Pub 560, it seems to me that your spreadsheet understates the amount you can *contribute* to a solo 401k. I put that in asterisks because I believe that *contributions* and *deductions* are different things–again based on my reading of Pub 560.
This is outlined on page 14 of Pub 560 for 2015 (easily retrievable on the net as a PDF via Google). Based on my reading of that page, *deductions* (for calculation of income tax) are limited, and the way to calculate the max you can deduct is given in a worksheet at the back of the pub (and I’m guessing that this is part if not all of what your spreadsheet is trying to duplicate). However, it looks to me from this page that you can *contribute* the max of your compensation (which, reading back though the definitions, looks like net profit before taxes) or 52K (2014 limit).
Now someone might ask, why would I want to contribute more than what I can deduct? If you want to contribute to a Roth account would be a good reason.
What do you/others think/know?
Harry Sit says
Mark – Only the employee can contribute to the Roth account. If the employer contributes more than it can deduct, the extra will still go in as profit sharing contribution, which will be taxed again upon withdrawal. So in theory you are correct. The employer *can* contribute more than the deduction limit but it makes no economic sense to do so.
Mark says
Thanks Harry. After further research, it appears you’re correct that only *employee* contributions are allowed to Roth 401(k) accounts. I can’t find anything in Pub 560 nor in the IRS bulletin that amended the 401(k) regs to create Roth accounts (http://www.irs.gov/irb/2006-06_IRB/ar07.html) that explicitly *prohibits* employer contributions, but both of these documents only mention employee contributions for Roth. Further, the Vanguard Individual 401(k) New Account Form, page 2, states the following:
“You can establish either of the following account types—or both—within the Vanguard Individual 401(k) Plan:
• Individual (pre-tax). Allows both employee salary deferral and employer contributions.
• Roth (after-tax). *Allows only employee salary deferral contributions.*” (asterisks mine)
Trish says
I have built two spreadsheets that I’ve been using for years – one based on the IRS worksheet, and the other based on the Fidelity worksheet, found at
https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/customer-service/401k-self-employed-owner-only-business.pdf
They both agree. But they differ from the result in your calculator.
I believe the difference is in where the Catch-up contribution ($6K for 2015) is calculated.
The EmployER rate drops a lot if you say “yes” to being over 50. However, I don’t think the Catchup contribution should affect the EmployER contribution (the 20% rate)? At least, it seems to be calculated at the bottom of the IRS and Fidelity calculators and doesn’t affect the calculations higher up, so long as you still have enough earned income of course!
Thanks! Would like to figure this out!
Harry Sit says
Trish – Thank you for bringing this up to my attention. I made a fix. It affects age 50 plus with low self-employment income. Please let me know whether this matches your spreadsheets now.
Trish says
Thanks Harry – the fix you made matches the Fidelity worksheet.
Thomas says
Hi, I have read your comments with great interest.
I do have one question that I cannot seem to find answered anywhere, namely is capital gains income included in total income for solo 401K contribution limits?
Ex: I am self employed and only have $5,000 SE income, but I sold an investment property that resulted in $250,000 taxable long term capital gains. How do I figure my contribution limit?
Thanks so much!!
Harry Sit says
Capital gains income is not included for calculating your solo 401k contribution.
Ricky says
How does a contribution to a back door ira which is a (traditional to a Roth) change the formula? If you have a 401k at work and employment income?
Harry Sit says
Ricky – It does not change the formula.
Jurgis Bekepuris says
Hi,
I’ve been reading your articles for a while and last year I decided to open a Husband-and-Wife Sole Proprietorship and solo 401(k)s for both of us. So far so good.
Now I am trying to figure out how to report things using Turbo Tax. Got a Turbo Tax Home and Business Online. It tells me to create two businesses for myself and for my wife. Is this the correct way to go? I used the same EIN that I got from IRS for both businesses. I don’t see any way to indicate to Turbo Tax that this is a single Husband-and-Wife Sole Proprietorship. Any help on this? 🙂
Then I think I put the solo 401(k) contributions into “Elective Deferrals” – that’s what you call “Salary Deferral” in your spreadsheet, yes?
Thanks a lot. Your site has been a lot of help.
Harry Sit says
Yes you do two businesses splitting the income and expenses. Yes salary deferrals are the same as elective deferrals.
Dr. Wise Money says
“Non-Roth after-tax contribution if plan allows” on the excel
does fidelity allow this?
how about vanguard?
Harry Sit says
Their plans don’t. You can use Fidelity to hold your assets if you get your plan elsewhere. See Mega Backdoor Roth In Solo 401k: Control Your Own Destiny.
Archana says
Repeating a question above (#49) as I did not fully understand your answer:
I am looking forward to trying out your spreadsheet once I understand the answer:
I’m over age 50 and have maxed the employee deferral contribution/catchup at work for 24K in 2015.
My self-employed “side” business has a high enough profit so that my max profit sharing contribution is 45K.
I have both a solo401K as well as a SEPIRA. I know that if I had contributed the 24K employee deferral to my solo401K then definitely would have to reduce my profitsharing contribution from 45K to 35K because of the 59K total max.
However I have heard that since the 24K employee deferral was to employer based 401K not my solo, then the 59K (rather 53K as 6K catchup contribution for over 50 has already been used in employee deferral). If that is the case then I can contribute the entire 45K not just the 35K.
My accountant does not seem to know this answer, and has not researched it for me despite several requests. Sounds like it is time to get a new accountant!
Great tool you have created by the way, thanks so much!
January 11, 2015 at 9:29 am
Harry Sit says
That’s correct. Each unrelated employer gets a separate $53k limit. If your self-employment income is high enough, you can contribute up to $53k to your solo 401k plan even though you already contributed $24k to a different employer’s plan.
D Fuller says
Harry, thank you for this. It appears the original link to the spreadsheet in your article is dead (I was able to access it via a link from an external forum at https://docs.zoho.com/sheet/published.do?rid=hd3vb2c79aa2e630443d58a05e8140934898a).
My question: I am a W2/1099 split employee, and have found your sheet incredibly helpful, but I’m having a hard time understanding what’s going on in each step. It’s difficult because I can’t see the calculations going on in each cell.
I understand that you have to protect the calculation cells at the bottom so that people don’t alter them, but would you be willing to put a description on the righthand that describes what the calculation is in each step? Alternatively, is there any way to access a download of this sheet for private use that would show the formulas? I’m purely interested in this for educational purposes.
Miles Bemberg says
Very helpful article.
Do you have a summary/primer of what types of income can be considered as “self employment income” for Solo 401(k) purposes?
For instance, I have a lot of K1 income and want to set up a Solo 401(k) on this basis. However, all of the income is interest / dividend / capital gains, and it is unclear whether that would count.
Harry Sit says
It has to be active, engaging your labor, not just sitting back collecting checks.
Morgan says
I just wanted to thank you for the spreadsheet. All I did was compare it to mine (because, hey, a spreadsheet) but it pointed out to me something I was not aware of. That 50% of Adjusted after EE contributions max is something I had never encountered. I have made too much to bump up against it before but this year will be the husbands first time filing and it would have tripped us up.
🙂
I’ve never seen anything about it before. Brilliant!!
jordan says
I skimmed the comments and didn’t quite see the situation I’m trying to set up… I apologize if this is a repeat. I’m considering doing a solo 401k with the intention of allowing me to make down the line mega roth contributions. I will be a federal worker and will have a TSP which does not allow for such transfers. If i only make 1000 with the side business can I still contribute until I hit the 55000 limit? Ie. 55000-18500 (tsp)- 10000 (employees match)= 22000 left for post tax contributions which can then be used for mega roth transfers during the lower income years (deployments for the reserves). Too good to be true? Love to hear people’s thoughts.
Harry Sit says
If you only make $1,000 from self-employment, you can’t contribute more than $1,000.
Steve says
Harry, I love the spreadsheet! Best calculator on the web currently. Do you plan on updating the spreadsheet for the upcoming tax year? I am wondering how best to maximize things with the Section 199A deduction. In 2019, I will be allowed to contribute to a SIMPLE IRA, solo 401k, HSA, and a Roth or Trad IRA next year, so there are a lot of variables in play for me.
Harry Sit says
The solo 401k contributions may affect the Section 199A deduction but the Section 199A deduction does not affect the solo 401k contribution limit. It’s still calculated the same way. The 2019 limits used by the spreadsheet will be announced in October.
sarabayo says
Harry, thanks for the spreadsheet. I would like to point out that there is an Additional Medicare Tax of 0.9% that was created a few years ago which applies to income over a threshold determined by your filing status. I haven’t figured out how to see the formulas in the spreadsheet, but I’m guessing it doesn’t account for the Additional Medicare Tax since it doesn’t ask me what my filing status is.
Harry Sit says
The spreadsheet calculates the Self-Employment tax. The contribution limit is calculated from the business income minus 1/2 of the Self-Employment tax. The 0.9% Additional Medicare Tax is not part of the Self-Employment tax. Therefore it doesn’t affect the calculation. That’s why the spreadsheet doesn’t ask about it.
sarabayo says
Thanks, that makes sense! My mistake was assuming that just because the Medicare Tax was part of the Self-Employment Tax, so would the Additional Medicare Tax be.
Brian says
Thank you so much for this spreadsheet, Harry. Really helped me out this year figuring out my wife (W2 + 1099) and my (1099) Solo 401k contributions. And extra thanks for clearing up this question on 0.9% medicare tax, I didn’t know where to work that in. I appreciate the blog and all of your clear explanations of things. Enjoy your retirement!
Randy says
Thanks this is awesome!
Do the solo 401k accounts for 2018 need to be opened in 2018?
About to set up first ones for me and spouse.
Thanks!
randy says
I think i found my answer and i’m not happy about it. Deadline to setup up the account was December 31st. Oh well better luck next year!
NewWorker says
Great spreadsheet. I’ve used it the last two years. I recently received a 1099-MISC for my part-time self employment income but it has my SSN instead of my EIN for my tax id. Can I still include that as my business income? I’m not incorporated and file through TurboTax with Schedule C. I’d like to do so to increase my contributions to my Solo 401k.
Thanks!
Harry Sit says
Yes but please tell all your customers to use your EIN in the future so everything stays consistent.
James says
I’m a dummy. Where is the dummy spreadsheet?
I’m self-employed and have no tax/retirement plan (spouse has a 401k and is W2). Spouse and I make over 200K combined AGI/MAGI. I was told to set up a solo 401K. I don’t get how much to open it up with. I also was told about the catch up. I don’t know how to go about that. I was also told to make a profit-sharing contribution that can be applied to 2018 and that amount is 18.59% of something. I am in the woods and wouldn’t mind a dummy version explaining all this. I could call this guy back but he said they charge 1.25% of any investments they make for me, annually. I’m going to get this figured out but trying to avoid (mistake?) paying a fee-based planner.
PaddyMac says
James, I’d advise you to join the Bogleheads Forum and post your question there as you will get lots of very detailed responses. YES to setting up a Solo 401, but NO to paying management fees. Vanguard, Fidelity and others have Individual 401k plans that are free and easy to set up (or almost free depending on balance). However, it’s too late to do this for 2018 tax year – you must create the plan by Dec. 31. You fund it usually with @ $3,000 to start. So set this up for 2019 tax year.
However, it’s not too late to open a SEP-IRA and save @ 20% of your business net profit (there’s a worksheet you have to fill out to arrive at the maximum contribution amount based on your net profit & half your self-employment tax). The SEP-IRA can be used for 2018, but then you must switch to only funding the 401k for 2019 (see if you can roll over SEP later to IRA or 401k). You can’t have both plans active. The SEP is the exact same space (and calculation) as the EmployER side of the 401k. But the benefit of the 401k is that it also adds the “salary deferral” EmployEE side ($19,000 for 2019 tax year). You should be able to max out both sides on your salary. If you can reduce your MAGI enough, you may also qualify for Roth IRAs for both of you. You might also look into having an HSA health care plan (tax free going in and out!). Good luck. It’s a lot to learn but worth it.
James Jordan says
Thanks PaddyMac. I’ve been on bogleheads to check a few things but I’ll have to follow it closer.
buoy says
Hi Harry,
Amazing resource here! In the Unincorp tab – I was curious if you could clarify the “Non-Roth after-tax contribution if plan allows” cell. When I max the day job fields (200k salary, 18500 401k) and put 50000 for the Net Business profit, I’m getting confused how it is coming up with 29,598 instead of a greater number.
Adjust net business profit = 49,330
Profit Sharing =9,866
Which leaves compensation at 39,464
Compensation is after profit sharing so wouldn’t the employee be able to contribute $39,464 instead of just $29,598? I tried to look through and see if there was some sort of limit but all I saw posts where it said it was 100% of compensation.
Also does the 18500 from the day job not apply to the 55000 yearly limit?
Thanks!
Harry Sit says
The employer contribution plus the employee contribution can’t exceed 100% compensation. The $55k limit is separate for each unrelated employer.
Buoy says
Thanks Harry. So in this scenario, the employer + employee would never be able to truly contribute 100% of the profit (49,330) to the retirement plan (401k, Roth). There would always be 20% (9866) leftover.
Thanks!
Harry Sit says
The employer can choose to make 0% profit sharing contribution. The spreadsheet has an input for 0% to 25%.
saildawg says
Harry thank you for your detailed series on the megabackdoor roth. I am re-reading everything twice, but I am having trouble understanding the numbers from the excel sheet.
For 2019 data(under 50yr old) W2 job max out salary deferral of $19,000, for 1099 profit $50,000 at 25% Profit sharing
It calculates $9,866.09 for profit sharing (I assume I could put this into trad/pretax 401k) and Non roth after tax @ 29,598.28
19,000 + 9,866.09 + 29598.28 = 58,464.37
Isn’t this over the 56K limit? I am sure I am missing something here. Thanks in advance!
Harry Sit says
The $56k limit is per unrelated employer.
Future Consultant says
I find myself in a situation where my new job has a 401a and 403b. I planned to max out the 403b contribution. I am also considering doing some small-scale consulting as a side business (with my employer’s permission). I don’t expect this to come to much, but would love to find a vehicle that would let me put as much of the consulting income towards retirement as possible. Is there such thing as a solo 401a with mandatory 100% employee contribution? Or is my best bet be a solo 401k with employer maxed out at 25% and no employee contribution? Any other options on the “employer” side to put all the self-employment into deferred payments?
serbeer says
URL for spreadsheet now should start with https://sheet.zoho.com DNS
Eric says
Can anyone explain why the “Non-Roth after-tax contribution if plan allows” calculation is effectively reduced by the Profit Sharing amount TWICE. Once to go from “Adjusted Net Business Profit” (cell B34) to get to “Compensation” (B40), then again from “Compensation” to get to the after tax amount allowed (F26). Not sure why it would need to be backed out twice. Could this be an error? What am I missing here?
Harry Sit says
From the business’s point of view, after it makes the profit sharing contribution, the rest is paid to the owner as compensation. The rule says the total contribution of all types (elective deferral + profit sharing + after-tax) can’t exceed a dollar limit ($56,000 in 2019, $57,000 in 2020) or the compensation, whichever is less. Because profit sharing is on both sides of the equation, $1 in profit sharing reduces after-tax contribution by $2. It goes away when the business earns more and the dollar limit becomes the limiting factor.
johnZ says
Harry, I’ve been a fan of your articles for +5 years. I wanted to do solo 401K for years but did not have self employment income. This year I earned ~$2000 for consulting. After I deduct all costs, the net income is only ~$100. And from your amazing worksheet, it shows I can contribute only ~$19 (via profit sharing as I’ll max out the personal deferral via day job). I have two “silly” questions: 1) will Fidelity or IRS allow such a small contribution? 2) Will I be allowed to transfer over $200K from my multiple IRAs to solo 401K (with only $19 balance) next year?
Harry Sit says
If your self-employment income is expected to continue, having a low income in the first year isn’t a problem. If it’s more or less one-time, I wouldn’t set up a solo 401k based on that.
David says
Harry, I was working with the spreadsheet (thank you!) and noticed that the annual addition limit for 2020 ($57K) is including the catch-up day-job deferred contribution for those over the age of 50.
It is my understanding that the limit is $57K *excluding* the catch up.
In the spreadsheet there is no clear place where to state the election of the catch up contribution.
If we include the catch-up in line 14 (for a total of $26k), then line 36 will reflect that correctly (stating $6500) but line 34 will increase also by $6500 as well (incorrectly, in my understanding of the rules). This in turn reduces (in my case) the amounts available for profit sharing and/or after tax non-Roth contributions.
If my understanding of the spreadsheet (or rules) is incorrect, I can’t see how.
Thank you.
Harry Sit says
David – Sorry it took so long. I finally looked at it and made a change. Please see if it works as expected now.
Yi says
What is the purpose of row 15? As far as I know, 401k and 403b are similar and your contribution of $19500 to any of them will decrease the total you can contribute to your solo 401k.
My test showed that your excel will allow a full $57000 to solo 401k if row 15 is no, but the number is changed to $37500 if it is yes. I think there is someting wrong here.
Harry Sit says
With regard to the annual additions limit ($57,000 in 2020), a 403b plan aggregates with a solo 401k plan, while a 401k plan does not. That’s why the calculator has to know whether the workplace plan is a 403b or a 401k.
New selfemployed says
Hi Harry,
I currently have two self-employment income streams (two different businesses) but no employed job. Calculating the retirement contributions is easy for the first job (set income from day job to zero), but what income do I place when calculating my second retirement contribution limit? Do you consider the number under ‘net earnings from self employment’ to be used in the ‘gross wages from day job’ on the first sheet?
Thanks again!
Harry Sit says
You should have only one solo 401k plan covering both self-employment income streams. Then you add up the income from both streams and calculate the contribution limit for the combined income.
New selfemployed says
I had wondered whether to combine the Solo 401k’s but did not simply because the two self employment income types were drastically different (one was from my professional degree, but the other came from blog income). Hence, now I have two different Solo 401k’s and am stuck finding out how to calculate contributions. Fortunately on one of them I contributed the maximal amount of employee contribution so the second one only consists of “employer contribution”.
Harry Sit says
I don’t think you’re allowed to have two solo 401k’s. If one plan hasn’t received any contribution yet, I suggest you contact the provider and see if you can void it, i.e. make it as if it was never created. Before you do that, seek professional guidance by posting to BenefitsLink Message Boards.
https://benefitslink.com/boards/
new to locums says
Thank you so much for all of the information above!
I just started doing locums in July 2020 in addition to full time employment. I have already maxed out my 401k through my employer and contributed $6000 to a backdoor Roth for 2020. My understanding is that it is too late to open a solo 401k so I opened a SEP IRA. Can I still contribute 25% of my 1099 profits as an employer to a SEP IRA, or would I need to subtract $6000 due to the backdoor Roth?
Thank you again for all your help!
Harry Sit says
You can still contribute as the employer to the SEP-IRA without subtracting your backdoor Roth contribution. However if you keep the money in your SEP-IRA through the end of the year it’s going to trigger the pro-rata rule. CARES Act allows adopting solo 401k for the previous year, although you can only contribute as the employer. Because that’s the same in SEP-IRA anyway, if you still want a solo 401k, you might as well do it in one shot.
new to locums says
Thanks for your response!
I previously tried to start an i401k at Vanguard but was confused about what dates to enter for “Effective date of this plan” and “Effective date for elective deferrals under this plan, if different” (with the comment “Note: The elective deferral date must be the same as or after the effective date.”) I thought the deadline to establish an i401k for 2020 was in December 2020 so I opened a vanguard SEP-IRA instead and added some money to the account.
Do you know what dates I should enter for the two dates in question? And would I be able to transfer money out of the SEP-IRA into the i401k now or would it be better to wait until after May?
Thank you again for all your help, I really appreciate it!
Harry Sit says
I didn’t know you already funded the SEP-IRA. In that case you should keep it clean: SEP-IRA for 2020, solo 401k for 2021. Make both dates January 1, 2021.
new to locums says
Okay I will do that. Thank you!
I have another question that is unrelated to this topic but if you have any insight I would be very grateful. Since I am new to locums I did not know about quarterly estimated taxes and have not made any payments since starting in 6/2020. Do you know if there is a way to make payments now for the quarterly taxes I owe or will they somehow be included in my annual taxes?
Harry Sit says
Too late now for quarterly estimated taxes for 2020. When you do your taxes for 2020, taxes will be calculated off of your combined income. If you had enough withholding from your day job, you may not owe a penalty. If you owe a penalty, you’ll hear from the IRS. For 2021, it’s easier to increase your withholding at your day job than paying estimated taxes.
Cathy says
I’m sure it’s explained somewhere up above my question, but here goes. The spreadsheet, I accessed it at https://docs.zoho.com/sheet/published/hd3vb2c79aa2e630443d58a05e8140934898a
So is it only printable, and not somehow saveable so you can come back to it often?
Cathy says
I am self employed sole proprieter, non incorporated. I have waited until the last minute to check on starting a solo 401K, of course. I have an extension to my 2020 tax return until Oct 15, and I understand that I may still open a 401k for 2020 and fund the employer side until that extension date. If my adjusted net business profit is $33457.00 based on the spreadsheet, (zeroing out the “other job”), and i am too late to contribute anything from the employee side for 2020, how much can i contribute as the employer? I can’t zero out the max employee contribution nor the catchup on the spreadsheet, and as you can see my income can’t justify either of those maxes.
Is it as simple as 20% of the adjusted net business profit? Thank you.
cathy says
I have managed to make a last minute IRA contribution of 7K for 2020 because I am 66. Does this affect any of the calculations for the 401k now? What about in the future? If I should for some obscure reason want to fund both the IRA and the 401k in 2021, how do they affect each other?
Sorry my questions keep on tumbling out…..
Harry Sit says
You can bookmark the link to the spreadsheet or save a text file with the link and come back to it whenever you’d like.
Without another job, and without the employee contributions, the maximum employer contribution to a solo 401k is the same as the maximum contribution to a SEP-IRA. You can use a SEP-IRA calculator, such as this one:
https://obliviousinvestor.com/sep-ira-calculator/
The IRA contribution does not affect the solo 401k contribution, but the solo 401k contribution may affect the IRA contribution in the future at your income level. If after making the maximum pre-tax employee and employer contributions to the solo 401k you don’t have enough compensation left, your IRA contribution will be limited to the remaining compensation. It can be mitigated by making your employee contributions to the solo 401k Roth contributions instead of traditional pre-tax if your plan allows Roth contributions. It doesn’t apply to you for 2020 because you’re not making any employee contributions.
Aatash says
Hi there,
The spreadsheet is not loading for me. Is anyone else having the same issue? Is the link broken?
Thanks,
AP
cathy says
https://docs.zoho.com/sheet/published/hd3vb2c79aa2e630443d58a05e8140934898a
I was able to access it at the above address. you can’t download it or copy it, but you can enter stuff – it adjusts to calculate your numbers, and you can print it.
lots of jobs says
Hi Harry, Thank you so much for this spreadsheet. I have 2 part-time W-2 jobs, one with a 403b and the other with a 401k. I also have a part time sole proprietorship. I contribute to both the 403b and the 401k since both employers offer match. Could you adjust the spreadsheet so that I can enter each amount separately? Thank you!
Anonymous says
I have a solo 401k at Fidelity sponsored by my S-Corp. It’s a “non-prototype” plan, meaning the money is housed at Fidelity but it’s a plan I purchased outside of Fidelity of which I am the administrator. I am planning to shut down my S-Corp soon, as I recently accepted a full time position with a large public company. I’ll be able to participate in the 401k sponsored by my new employer. I’m allowed to roll my solo 401k into the new 401k, but unfortunately I will not be able to roll my shares over in-kind. I would have to cash out and wait several days. My other choice would be to roll over to Fidelity IRA, in which case I could probably transfer in kind. But in that case, I would no longer be able to do individual back door Roth contributions since this is tax deferred money. My other option might be to try to add myself to the solo 401k as a sole proprietor sponsor. So maybe I could keep the solo 401k open just to maintain it, but not make any further contributions until I found a regular side gig. What would you do if you were me?
Harry Sit says
I would change the plan sponsor to a sole proprietorship first to see whether I’ll do other side gigs. If the answer is “No” after a while, I would roll it over to the employer’s 401k. The time out of the market during a rollover can be managed. See How to Roll Over a 401k without Going Out of the Market. If the new employer’s 401k manager also manages IRAs, say it’s Charles Schwab, you may be able to do Fidelity solo 401k -> in-kind to Fidelity IRA -> trade to ETFs -> in-kind to Schwab IRA -> quick rollover to Schwab 401k. It won’t affect your backdoor Roth if the moves all happen within the same calendar year. I would start the moves early in the year, not close to the end of the year.
SS says
Hello! Great job on the spreadsheet!
On the “Unincorporated tab”, it looks like the Desired Profit sharing mentions a rate of 0-25% (cell A19), but since this is a sole proprietorship, I thought the max profit sharing is 20% right?
Harry Sit says
25% of compensation post profit sharing. Profit Sharing = 25% * (1 – Profit Sharing).