Solo 401k (Employee Contributions & Employer Contributions)

I'm a single member LLC. Just me. No employees. I opened a solo 401k for myself in 2023.

From what I've been reading, I put my employee contributions under the "Deductions/Credits" section and "Enter your 2023 deductible contributions to your Keogh, SIMPLE, or other plan:"

I haven't been able to find a solid answer for where to put the employer contributions. Some places I've read to include employer contributions in the same spot as employee contributions, and in other places, I've read to put employer contributions on my schedule C under business expenses for Pension/Profit Sharing. Could anyone advise where is the correct spot to list Employer Contributions?

Also, I'm not sure how much I can contribute as the employer. My net income after expenses is about $40k. I read a formula.

.153 x .9235 x 40,000 x .50 = $2,825.91

$40k - $2,825.91 = $37,174.09 x .20 = $7,434.82 (employer contribution limit)

Is that the correct formula? If so, do I deduct the $7,434.82 employer contributions under Schedule C or add it in same spot as employee contributions?

Thanks!

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JanaA

Contributions made to your traditional solo 401k should be entered by going to Deductions/Credits > SEP Contributions and then answering Yes where the software asks if you have a SEP, SIMPLE, or other self-employed qualified retirement plan. The deduction will be reported on Schedule 1, line 16 of your federal tax return.

You must make a special computation to figure the maximum amount of elective deferrals and nonelective contributions you can make for yourself. When figuring the contribution, compensation is your earned income, which is defined as net earnings from self-employment after deducting both:

one-half of your self-employment tax, and
contributions for yourself.

You can review Chapter 5 of IRS Publication 560 to see a worksheet that helps you calculate the amount you can contribute.

rslheath

LTS_II

FreeTaxUSA's software can not accommodate a solo 401k. You will need to use other tax prep software. See my post for greater detail—

https://community.freetaxusa.com/discussion/697/solo-or-single-participant-401k

Henry

https://community.freetaxusa.com/discussion/comment/1381#Comment_1381

This is correct, LTS_II. The SEP Contributions screen is the right place to enter all of your contributions to a solo 401(k) (you would only enter this type of expense on Schedule C if you had employees other than yourself for whom you made a contribution).

If you, as the business owner, are included in the retirement plan, there is no differentiation between employee and employer contributions for the purpose of reporting the contributions (and adjustment) on your return, although you will need to make sure you have calculated your allowed contributions correctly, based on your plan's limitations.

In our software, the way to report that amount on line 16 of Schedule 1 is to select Deductions/Credits > SEP Contributions from the menu. Answer YES when asked if you have a SEP, SIMPLE, or other self-employed qualified retirement plan. You'll see two entry boxes there.

The appropriate place to account for solo 401(k) contributions is as a "Keogh, SIMPLE, or other plan." When you do this, the deduction is not calculated by our software, and it is up to you to determine the correct deduction amount and enter it there. Entries in the "Keogh, SIMPLE, or other plan" field will only be limited by your net profit from self-employment.

You should use the rate table or worksheets in Chapter 5 of IRS Publication 560 to figure your deductible contributions to your 401(k) plan.

Henry

LTS_II, we have looked into this further and can confirm that our software does have some support for employee and employer contributions. I have updated my response above with new information. Let us know if you have any further questions!

lk67

I am in a very similar situation as the original poster. I thought the employer contribution is able to come from pretax dollar? My understanding is that I can subtract the employer contribution from the business income. This number is supposed to be reported on line 8a of Schedule 1.

How do I report the employer contribution on line 8a of Schedule 1?

KeriC

https://community.freetaxusa.com/discussion/comment/1614#Comment_1614

Schedule 1 Line 8a reports a net operating loss, which wouldn't be the correct place for employer contributions to be reported. Instead, it should be reported on Schedule 1 Line 16. Please refer to Henry's comment on February 28th for instructions on having it be reported on Line 16 of Schedule 1.

lk67

Thank you

ill8

https://community.freetaxusa.com/discussion/comment/1407#Comment_1407

I am confused about this part: The appropriate place to account for solo 401(k) contributions is as a "Keogh, SIMPLE, or other plan." When you do this, the deduction is not calculated by our software, and it is up to you to determine the correct deduction amount and enter it there. Entries in the "Keogh, SIMPLE, or other plan" field will only be limited by your net profit from self-employment.

What do you mean by "deduction is not calculated by our software"? Will FreeTaxUSA calculate deduction automatically if I use "Enter your 2021 deductible contributions to your Keogh, SIMPLE, or other plan: [____]" for employee and employer contributions? My plan is SOLO Traditional (pre-tax) 401(k)

MatthewD

Hello ill8,

What we mean, is you must calculate your deductions for that line based on your Self-employment income. When you enter the amount of your SOLO 401(k) on that line, we will only impose a limit based on your net business profit and then enter the amount on your Form 1040, Schedule 1. We do not calculate any contribution limits for that entry based on your SE Income. The only limit is your net business profit. So be cautious when using that line. If you enter an amount on the "SEP plan:" line, we do calculate limits.

AdamNPSD

I am having the same problem in 2025 for 2024 returns. The SEP Contributions page is inaccurately named and the entry descriptions are also inaccurate, but I believe it can be done.

After some trail and error, to record solo 401(k) contributions — including as both the employee and employer — you choose "Yes" for the second question, "Did [you] make elective employee contributions to a qualified retirement plan?
" Solo 401(k) is considered a qualified plan, not an SEP plan, so it should not be entered in the first question.

The software, and the IRS, apparently does not differentiate between employer and employee contributions; it is your responsibility to make sure the total amount has been calculated correctly and does not exceed the maximum (there are a bunch of online calculators for this elsewhere). Entering the total amount here will indeed fill it into 1040, Sched 1, line 16 where it is supposed to go. It's simply all lumped together.

The "SEP Contributions" page should more accurately be named "Self-employed Retirement Plan Contributions". Qualified and SIMPLE plans are not SEP so the title is misleading. The second question should be more accurately worded to "Did [you] make elective employer or employee contributions to a qualified retirement plan?" followed by "Enter [your] 2024 elective employer and employee combined contributions to a qualified plan:"