Will IRS let me do this?

[spncity]

So, we may file an extension. We have paid plenty of estimated. No problem there.

And I may put some earned income into Solo 401k as I did a little client work last year.

BUT - in October before filing the final tax return - if I want to change my mind and put less in the Solo 401k and get less refund - can I take the tax deferred money or part of it back out of the Solo 401k??

Just wondering.

P.S. I'm always confused by TurboTax's label because they don't call it Solo 401k...

 

[Jerry1]

I haven’t done the research, but if there’s a chance you could do it, it would be if you do it before the filing deadline (April 15, 2019). After that, I wouldn’t think you’d stand much of a chance.

 

[38Chevy454]

I believe you can reclassify the contribution, and would (obviously) need to include it in your income. I am sure there is a form (don't know a number) that you would need to fill out and document the reclassification of the money form pre-tax to after-tax. You may also need to ensure that you make the change before April 15, not sure you can go past that date to be effective for 2018 tax year.


There are people with better understanding of tax details that can either confirm my thoughts, or state what the exact rules are. As for TT, you might try posting a question on the TT Q&A forum and see what they recommend to do inside TT software so you are dealing with what you think you are.

 

[spncity]

I should have clarified.

I would make the contribution to the Solo 401k before April 15 and file a tax return "extension".

Was hoping that when I do the final tax return (in, say, October), I could change my mind and make "less" of a contribution to the Solo 401k (thus paying more tax) and just withdraw that amount, no harm, no foul.

Maybe this is clearer....

 

[samclem]

1) You've already got a solo 401K account, right? Unless the rules have changed, you can't open the account after the end of the tax year and make a contribution for that year.


2) You can make contributions for the employer and employee portions up to the filing deadline (including extensions). So, obviously you could just wait until then and not have any need to mess around with making a change later. The only "price" would be loss of the tax deferral on any growth on the dough for the next 8 months.

 

[spncity]

Yes, already have the Solo 401k.

Yes, understand the employee and employer parts.

Just wanted to be sure I would have until the extension to be absolutely sure of the amounts I want to contribute (within the amounts allowed by the guidelines).

 

[MissMolly]

According to Intuit, if you have filed an extension you have until Oct 15.

https://accountants-community.intuit.com/questions/1332132-can-contributions-be-made-to-your-401-k-once-the-tax-year-ends-up-to-the-tax-filing-deadline-but-credit-give-to-the-tax-year-you-are-filing

 

[pb4uski]

But the OP's question is a little different than the notion of waiting until the return is filed before making the contribution.... it is make a contribution now and then reduce it later but before the tax filing deadline.

I don't know the answer, but I think the safer path would be to just wait until just before you file your return to make the contribution

 

[spncity]

Thank you! I didn't know the contribution deadline would move to the extension date

 

[Jerry1]

Thank you! I didn't know the contribution deadline would move to the extension date

I’m a CPA. I only practiced for a couple years, but stayed abreast of tax law in general. I had never heard of the contribution deadline moving with the extension. I don’t know if that’s new or what. But when this thread started, I did some casual research and came to the same conclusion. It does seem, that if you extend your return, you extend your contribution deadline. It seems counterintuitive to me only because I’ve never heard any other date but April 15th to get your contributions in. Because of that, I’d try to get that confirmed by someone who is currently practicing or see that example in the IRS publication before I relied on it.

 

[pb4uski]

I can't find anything other than MissMolly's Intuit link which is for 401ks supporting that the deadline moves with extension.... in fact, the IRS website specifically says that it excludes extensions.

https://www.irs.gov/retirement-plans/traditional-and-roth-iras

What is the deadline to make contributions?

Your tax return filing deadline (not including extensions). For example, you can make 2018 IRA contributions until April 15, 2019.

 

[Jerry1]

I can't find anything other than MissMolly's Intuit link which is for 401ks supporting that the deadline moves with extension.... in fact, the IRS website specifically says that it excludes extensions.

https://www.irs.gov/retirement-plans/traditional-and-roth-iras

What is the deadline to make contributions?

Your tax return filing deadline (not including extensions). For example, you can make 2018 IRA contributions until April 15, 2019.

But the OP has a solo 401k. The deadline for a 401k may be different that for an IRA.

 

[pb4uski]

But the OP has a solo 401k. The deadline for a 401k may be different that for an IRA.

Yup, I missed that.... thought it was a IRA.

 

[PaddyMac]

When you have self-employed income and an Individual 401k, the deadline is indeed moved to the actual filing date including extension. We've often saved a chunk in early October for the prior year. However, we always complete our tax return to the penny, and then we make our contribution, and when it is withdrawn from our checking we are free to file.

If you do make a contribution in 2019 for 2018 tax year, I believe you can ask your custodian to reclassify it as a contribution for the 2019 tax year (if you haven't filed taxes yet). This would be easier than withdrawing it I would think.

 

[Jerry1]

Reading Publication 560, which I believe covers this question, it does state that contributions are based on filing - including extensions.

 

[spncity]

Thanks everyone.

I know this isn't an IRS publication - but it is what the TurboTax rep sent me during our phone call:

Solo 401k plan maximum elective deferral amount when net profit is less that $18500 for 2018

I have a solo 401k plan for my single member LLC, taxed as a sole proprietor.
For 2018, I understand the employee elective deferral maximum is $18,500. Unfortunately, I forecast my net profit (Sch. C, Ln 31) to be less than the maximum deferral. I have no W-2 income, just 1099. My question... is my net profit (Sch C, Ln 31) then the maximum amount of my elective deferral? For the employee part of the contribution, is it that simple? Or, is there other calculations involved?

• If you only have self-employment income you can only contribute up to your net profit reduced by the deduction allowed for one-half of your self-employment taxes 1040 line 57). That is the amount on 1040 line 27. And I think also any health ins deduction on line 29.

Regarding the self-employed health insurance deduction, the self-employed retirement deduction has priority over the self-employed health insurance deduction. If all of the net profit from self-employment goes to the deductible portion of self-employment taxes and the self-employed retirement deduction, no self-employed health insurance deduction will be permitted and the health insurance payments would have to be reported as an itemized medical expense on Schedule A. TurboTax calculates all of this automatically when you tell TurboTax to maximize your individual 401(k) contribution.

One thing to consider: If you pay for health insurance that qualifies for the self-employed health insurance deduction, depending on your marginal tax rate you might want to limit your individual 401(k) elective deferral so that you can allocate a portion of your net profit to the self-employed health insurance deduction instead if you are unable to benefit from itemizing your health insurance payments, say, because you'll be using the standard deduction. A deductible traditional 401(k) contribution is money which will eventually be taxed as ordinary income while the money allocated as a self-employed health insurance deduction is money on which you will never pay taxes.

[FONT=Arial,Sans-Serif]Thank you for contacting TurboTax Support.[/FONT]

 

[spncity]

At first I couldn't understand why the maximize calculation was lower than I'd thought it would be - but it's because they are taking the health insurance deduction first...

 

[spncity]

One thing that bugs me about TurboTax is that it does not list Solo 401k, nor does it give examples with that name in the place where it is entered. They only lists Profit-sharing Keogh (which is where Solo 401k fits) and three other things like SEP, Simple.... Confusing for non-tax experts.

 

[spncity]

1) You've already got a solo 401K account, right? Unless the rules have changed, you can't open the account after the end of the tax year and make a contribution for that year.


2) You can make contributions for the employer and employee portions up to the filing deadline (including extensions). So, obviously you could just wait until then and not have any need to mess around with making a change later. The only "price" would be loss of the tax deferral on any growth on the dough for the next 8 months.

Regarding the first paragraph - I found this chart below which says this particular type can be set up any time (got the info from the cpa).

Also, I'm not sure I had understood before that both the owner and the spouse can contribute to respective Solo 401k accounts.