I used to be a contractor (1099) in 2014, but have been a W-2 employee all of 2015 and 2016, I work for a startup that I am not the owner of, they pay me as a w2 employee.

In 2015, I maxed out my Solo 401(k) through Vanguard. I was wondering if I can use my Solo 401(k) contribution as a tax write-off for my W-2 earned income?

I read this, but can't decipher the answer within there: https://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans

Thank you for your help.

  • Is your W-2 income from your own company (i.e., are you paying yourself as an employee of your own business)?
    – BrenBarn
    Apr 22 '16 at 17:39

From your question it seems like you own the business and you W-2 yourself. Therefore any pre-tax employee contributions you might have already made (ie. employee deferrals) have already been deducted from your W-2. In a simple W-2, Box 1 (Gross income, what you pay income tax on before any adjustments) will equal Box 5 minus 401k deferrals.

Your options for shrinking your tax burden using your Solo 401k plan are a little restricted because you W-2 yourself. You've missed the opportunity for employee contributions in 2015 besides what you may have already done, so you can't shrink your personal tax burden for 2015. You could still make employer contributions for 2015 and lower your corporate tax burden. However, this is only available if you have not yet filed your business's tax return for 2015.

  • If he/she is an S-Corp, the employer contribution will effectively lower his/her personal tax burden. S-Corps do not pay federal taxes. Apr 22 '16 at 14:43
  • How will it lower his personal though? He's a W-2 employee so his taxes are dependent on his wages which were already determined at the end of 2015. To make any more contributions for 2015 it would need to be an employer contribution, and employer contributions aren't deducted on an employee's W-2. Theoretically all the money is his anyway regardless of who gets the tax break. But I think he's asking about his personal taxes specifically.
    – Chris
    Apr 22 '16 at 14:59
  • If he makes employer contributions, it will reduce his business's net income, which will reduce his personal tax burden. Again, this is assuming he has an S-Corp. Apr 22 '16 at 15:41
  • Another way to put it: it will not reduce income on his W-2, but will reduce the amount reported on his K1. Apr 22 '16 at 15:42
  • 1
    Oh, that makes sense. I wasn't thinking that he'd get a K-1 because of his W-2, but that does make sense that he would.
    – Chris
    Apr 22 '16 at 16:36

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