I am trying to understand the contribution limits to a solo 401K plan and the interaction with deduction limits for self- employed (SE) health insurance. Per IRS instructions health insurance deduction is limited to net schedule C income less 1/2 SE tax, less retirement plan contribution. link https://taxmap.irs.gov/taxmap/instr/i1040gi-010.htm#w24811v09 The main issue is if the retirement plan contribution is too high you lose/reduce the health insurance deduction, which I want to avoid. Here is my example and understanding:
Net Schedule C profit $20,000, Health Insurance premium $8,108, 1/2 SE tax $1,413
Maximum total contribution to solo 401K without loss of insurance deduction is $10,479 ( 20,000 -1,413 -8,108 = 14,479) and contribution to 401K plan is made up of either $10,479 employee contribution or $6,762 employee contributions plus 20% employer contribution of $3,717 (20,000 - 1,413 = 18,587 x 20% = 3,717)
Is my understanding & computations correct?
What about the over age 50 catch up contribution of $6,000? Not sure if this is permitted in excess of above contribution without limitations. (so total contribution to solo 401K of $16,479 ---- 10,479 +6,000)
Thanks,
T
