Originally Posted by klj1789
#1; I know that my employee Roth contributions are not deductible (just as Roth IRA contributions would not be deductible).
#2;However, are the employer Roth contributions treated as a business expense? That is, could I deduct the employer part of my contributions on Schedule C (even though it's a solo Roth 401k)?
#3:And in general, are there any tax differences between making employer vs. employee contributions to an individual Roth 401(k)?
#1;Correct. A newer kind of 401k account, a Roth 401k, works in much the same way as a Traditional 401k, with a few important differences. You fund your R- 401k account with after-tax dollars, such as your take-home wages from your job. Because you've already paid taxes on the money you're investing, any withdrawals you make at a later date aren't tax-liable a second time.So, with a R-401k, you delay your tax benefits and reductions until you are ready to withdraw funds.
#2:Employers are permitted to make matching contributions on employees' designated Roth contributions. However, employers' contributions cannot receive the Roth tax treatment. The matching contributions made on account of designated Roth contributions must be allocated to a pre-tax account, just as matching contributions are on traditional, pre-tax elective contributions. You have what is known as a solo or individual 401(k). You may deduct up to $17,500 of 401(k) contributions and $5,000 of catch up contributions (if over age 50) provided you have that much net income. You have the right line of Form 1040. Since you aare self-employed, you are not an employee, nor are you an employer. The rules regarding employer contributions/employee deferral only apply in an environment where you have employees. There is no deduction on Sch Cyou’re your R-401(k) deduction. while no deduction is taken on Sch C, your deductible contribution is limited to the lower of Sch C net income reported on line 29/ 31or $17,500 ($23,000 if over 50). Since it's above the line on 1040 line 28 it's as good as taking it on Sch C anyway.
#3:As described above; Employer matches are made with pretax dollars, and the match accumulates in a separate account that is taxed as ordinary income at withdrawal. for EEs, contributions to Roth 401(k) plans are not tax deductible, but once the money is in the plan, it grows tax free. Roth Solo 401k contributions are made after-tax and are not tax deductible. When the money is taken out at retirement, the earnings and base are still tax free. This makes the R-401K plan more attractive to people who think they will be in a higher tax bracket at retirement than they will be in the contribution year.