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With a Solo 401k, I can contribute up to 25% of my income as "employer contributions." Do these contributions count toward my adjusted gross income?

Example

I make $100,000 in 2015. I am 55 years old.

I contribute $24,000 (standard + catch up) to a pre-tax solo 401k.

Then I make "employer" contributions of $19,000 to the plan.

So, my taxable income for the year is $57,000, but is my gross income $100,000 or $81,000?

I ask because in a traditional employer sponsored 401k plan, employer contributions would not count toward my gross income. As to my motive: assume there exists a government plan which requires you make less than $85,000 to qualify. Would I qualify for such a plan under these circumstances?

  • Can you give more specific about the government plan? Different plans can look at different things. – Bishop Nov 20 '15 at 18:06
  • @Bishop I'm mostly looking for a general guideline, but let's use healthcare.gov. (Actual limit for a household of 2 is $63,720) – Luke Nov 20 '15 at 18:14
  • Is another way this is relevant, whether the total for FICA (which 401k does not get exempted from) is 81,000 or 100,000? And is that maybe where the answer is found? – Joe Nov 20 '15 at 18:31
  • @Joe Yes! That is also relevant. – Luke Nov 20 '15 at 18:34
  • Can you clarify the references to "gross income" vs "adjusted gross income" in your question? Are you asking whether this would count toward gross income or adjusted gross income? – BrenBarn Nov 21 '15 at 2:37
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This seems to depend on what kind of corporation you have set up.

If you're set up as a sole proprietor, then the Solo 401k contributions, whether employee or employer, will be deducted from your gross income. Thus they don't reduce it.

If you're set up as an S-Corp, then the employer contributions, similar to large employer contributions, will be deducted from wages, and won't show up in Box 1 on your W-2, so they would reduce your gross income. (Note, employee contributions also would go away from Box 1, but would still be in Box 3 and 5 for FICA/payroll tax purposes).

This is nicely discussed in detail here.

The IRS page that discusses this in more (harder to understand) detail is here.


Separately, I think a discussion of "Gross Income" is merited, as it has a special definition for sole proprietorships.

The IRS defines it in publication 501 as:

Gross income. Gross income is all income you receive in the form of money, goods, property, and services that is not exempt from tax. If you are married and live with your spouse in a community property state, half of any income defined by state law as community income may be considered yours. For a list of community property states, see Community property states under Married Filing Separately, later.

Self-employed persons. If you are self-employed in a business that provides services (where products are not a factor), your gross income from that business is the gross receipts. If you are self-employed in a business involving manufacturing, merchandising, or mining, your gross income from that business is the total sales minus the cost of goods sold. In either case, you must add any income from investments and from incidental or outside operations or sources.

So I think that regardless of 401(k) contributions, your gross income is your gross receipts (if you're a contractor, it's probably the total listed on your 1099(s)).

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  • The question was about adjusted gross income (at least, I think --- it is inconsistently phrased in the question). – BrenBarn Nov 20 '15 at 22:35
  • @BrenBarn Well, I agree, mostly; but I think the definition of (regular) Gross Income is still relevant: whether you're talking about that or AGI, you're still coming from the starting point of (unadjusted) Gross Income. For this to count differently towards AGI, it would also have to count differently for Gross Income, which it doesn't (per the IRS link above). – Joe Nov 20 '15 at 22:38
  • I don't think that is true. Things like deductible retirement contributions are part of gross income (apparently referred to as "total income" on the 1040), but not part of adjusted gross income. Adjusted gross income is what's relevant for most tax purposes (and thus for the question). If only gross receipts affected taxes, there would be little point to starting up a Solo 401k at all. The questioner accepted your answer, but I think it would be good to clarify it, because right now I think it misleadingly implies that Solo 401k contributions won't affect your taxes. – BrenBarn Nov 21 '15 at 2:39

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