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Solo Roth 401k Contribution Limits

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  • Solo Roth 401k Contribution Limits

    Hello all, and thanks in advance for taking the time to help me with this question.

    My goal is to create as much Roth space as possible. I made $2,095 as a 1099 employee in 2019. I opened a Individual Roth 401k at Vanguard, and contributed $1,923, but just realized this was the maximum allowed for a traditional 401k, not Roth. From what I can find on the internet, it looks like there is a 10% penalty for excess employer contributions, but you get double taxed on excess employee contributions over $19,500. This does not mention what happens for contributing more than allowed.

    In my particular scenario, being in a low tax-bracket at a young age with a decent amount of money to invest, I'd be inclined to pay the 10% penalty to create more Roth space though I know this would be frowned on by most investors.

    Lastly, where do I pay the taxes since this was all contributed to the Roth 401k? Does this go on my Schedule C?

    Thanks everyone,
    Jace

  • #2
    There is only one combined traditional/Roth employee deferral limit.
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    • #3
      spiritrider thanks for getting back to me, I suppose I didn't phrase the question properly, but thank you for the clarification on the first half of it. I received $2,095 in 1099 income, nothing withheld, and I am not going to claim any business expenses. How do I figure out the profit of the business since I have to contribute after tax dollars? Do I count 1099 income first, or interest from savings accounts, or W2 income to determine my federal/state income tax bracket, since this would affect how profitable the business is?

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      • #4
        First, there is long standing IRS guidance that a business must claim reasonable deductions, if to do otherwise would result in a tax benefit. In this case, tax advantaged retirement contributions.

        A I succinctly tried to point out in my reply. Traditional or Roth contributions have absolutely no bearing on the profit of the business, the net earnings from self-employment and thus the contribution limits. Nor does any other income of any kind.

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        • #5
          Your 401k contribution is based on business profits only (whether Roth or traditional, as spiritrider pointed out). The rest of your tax profile (interest income, standard or itemized ded's, etc) do not impact the calculation of the amount you are allowed to contribute to your 401k. Your Roth contribution itself is made with "after-tax dollars"; it is not calculated based on after-tax dollars. I think that may be where you may be getting confused.
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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