I am a tax preparer and I have a situation here. I need a little bit of help.
I have this couple who are both age 65. They both work for school in their day job and contributed $25,000 each in their 403(b) plan in their day job for 2019. The wife also has a side business as translator with
1099-Misc. income total net income ( profit) $20,000 in Schedule C after all expenses deduction.
Can my client contribute all this $20,000 net profit to her Solo 401K plan? or She only can contribute employer portion which is 20% of her Scheduce C net profit?
Can Voluntary After-Tax Contribution apply to her? I am a little bit confused with this part.
1) The employee contribution limit applies at the employee level so if one already maximized contributions to a "day job" plan, they can't make any pre-tax employee contributions to a Solo 401k sponsored by their self-employed business.
2) The employer contribution limit for a sole proprietor is 20% of the self-employment compensation (i.e. Net Income on Line 31 of Schedule LESS 1/2 of the self-employment tax).
3) In order to make a voluntary after-tax contribution, the plan must allow for such contributions. The voluntary after-tax contribution limit is 100% of the self-employment compensation not to exceed the overall limit (e.g. $56K for 2019) REDUCED by any employee or employer contributions made to the plan. Visit Here to learn more about the solo 401k contribution rules.