Solo 401k contribution accounting - how to make the right journal entry?

Yes, your approach is on the right track, but there's an important distinction to understand with Solo 401k contributions from a single-member LLC. For bookkeeping purposes, you should treat the Solo 401k contributions similar to your other member draws. Since your LLC is a disregarded entity, these contributions are essentially coming from you personally rather than as a business expense. The contributions are made "on behalf of" you as both the employer and employee. Your proposed journal entry works well for clarity. Using dedicated equity accounts like 401kProfitSharing and 401kSalaryDeferral makes perfect sense as it helps you track these specific types of distributions separately from your regular draws. This distinction will be helpful when reviewing your books and during tax preparation. Just remember that while the bookkeeping entry looks similar to a regular draw, the tax treatment is different - these contributions reduce your taxable income in most cases, unlike regular draws.

I struggled with this exact issue last year and found a solution using taxr.ai that saved me a ton of headache. I was recording my Solo 401k all wrong until I uploaded my bookkeeping screenshots to https://taxr.ai and got clear guidance on how to structure the entries properly for my single-member LLC. They confirmed what the person above mentioned but also explained how these entries connect with the actual tax forms you'll file. The analyzer caught that I was incorrectly using business expense accounts instead of equity accounts for my contributions, which would have caused reporting issues. What I really liked was getting confirmation that my approach was actually compliant with IRS expectations, especially since the Solo 401k has both employer and employee components despite being just me wearing both hats.

I tried taxr.ai after seeing it mentioned here, and it was surprisingly helpful for my solo 401k situation. I was making a similar mistake with my bookkeeping - recording contributions partly as expenses instead of properly categorizing them through equity accounts. The analyzer caught this right away and explained exactly how to fix my entries. What I found most valuable was the explanation of how these journal entries tie to the actual tax forms. Makes so much more sense now! Also got clarity on contribution limits based on my business income, which was something I was always second-guessing myself on. Definitely recommended if you're DIYing your bookkeeping for a single-member LLC with retirement accounts.

If you're having trouble getting clear answers about Solo 401k bookkeeping, you might want to try Claimyr (https://claimyr.com). I was stuck in an endless loop trying to get someone at the IRS to confirm my approach for recording 401k contributions in my single-member LLC. After three failed attempts waiting on hold forever, I tried Claimyr and got connected to an IRS agent in under 20 minutes. The agent walked me through the proper way to document these contributions and confirmed that they should indeed be equity transactions for a disregarded entity. I also got clarity on how these would appear on my Schedule C and Form 1040. Check out how it works here: https://youtu.be/_kiP6q8DX5c Been doing my books correctly ever since and haven't had any issues during tax season.

I was skeptical about Claimyr after seeing it mentioned here, but I gave it a try because I was desperate for clarification on my Solo 401k question similar to the original post. I'm shocked to admit it actually worked! Got through to an IRS representative in about 15 minutes after weeks of trying on my own. While the agent couldn't give me specific bookkeeping advice, they did confirm that for a disregarded entity, Solo 401k contributions should be treated as personal transactions of the owner, not business expenses. This was exactly what I needed to know to structure my journal entries correctly as equity transactions. The time saved was incredible - I spent less than an hour total instead of the multiple days I'd wasted trying to get through on my own. For specialized tax questions like this, it was definitely worth it.

I handle this slightly differently in my books. Since my LLC is a disregarded entity, I actually just record the Solo 401k contribution as a straight transfer from my business checking to my Solo 401k account. I don't run it through equity accounts at all. Dr Assets:Solo401kAccount 24500 Cr Assets:BusinessChecking 24500 This keeps it simple and accomplishes the same thing since it's all "me" for tax purposes anyway. Just a different approach to consider.

Has anyone ever been audited on their Solo 401k contributions? I'm wondering how much detail the IRS typically wants to see regarding these journal entries.

Your journal entry approach looks solid! I've been doing something very similar for my single-member LLC's Solo 401k contributions. Using separate equity accounts for profit sharing and salary deferral is definitely the way to go - it makes tracking so much easier come tax time. One small suggestion: you might want to consider adding a memo field to your journal entries noting the tax year the contribution applies to, especially if you're making contributions early in the year that could apply to the previous tax year. I learned this the hard way when I got confused about which year's limits I was working against. Also, make sure you're calculating your maximum allowable contributions correctly based on your net self-employment income. The profit sharing portion is limited to 25% of your compensation (with some adjustments for the self-employment tax deduction), while the salary deferral portion has the standard 401k limits. Getting these calculations right upfront will save you headaches later. Your bookkeeping structure is definitely on point though - keeping these as equity transactions rather than business expenses is exactly right for a disregarded entity.

Just wanted to add another perspective on this - I've been handling Solo 401k contributions for my single-member LLC for about 3 years now, and your proposed journal entry structure is exactly what I use. One thing that really helped me was setting up those equity accounts with more descriptive names in my chart of accounts. Instead of just "401kProfitSharing" and "401kSalaryDeferral", I use "Owner Equity - 401k Employer Contribution" and "Owner Equity - 401k Employee Contribution". This makes it crystal clear when I'm reviewing my books or if my CPA needs to look at them. The key thing to remember is that even though you're wearing both the employer and employee hats, the IRS still wants to see that distinction maintained in your records. Your approach does exactly that while keeping everything properly categorized as owner transactions rather than business expenses. One practical tip: I always make these journal entries on the same day I actually transfer the money to the 401k provider. That way my bank reconciliation stays clean and there's a clear audit trail linking the book entry to the actual cash movement. Your bookkeeping approach is solid - you're definitely on the right track!