Question is for sole proprietorships (Sched C filers), regarding elective contributions (deductible vs. Roth), in the presence of health insurance premiums (1040 line 29 adjustment to income).
There seems to be a "loophole", where you could get the same deduction whether you make a deductible or Roth contribution to an individual
401(K). If that's correct, then obviously select the Roth option.You're allowed to deduct health insurance premiums (1040 line 29) to the extent that they don't exceed the net business profit (after subtracting the deductible part of SE tax (1040 line 27) and the _deductible part_ of retirement contributions (1040 line 28)). There is a worksheet for line 29 that shows this.
Some example numbers. To simplify, I assume a small profit, matched by the health insurance premiums.
Net income from business (after deducting employer-side SE tax): $5,000 Elective deductible contribution (1040 line 28): $5,000 Health insurance premiums: $5,000 - Total allowed deductions: $5K (health premiums excluded, 401k ok)
But... Net income from business (after deducting SE tax): $5,000 Elective Roth (non-deductible) contribution $5,000 Health insurance premiums: $5,000 - Total allowed deductions: $5K (health premiums, no ded for Roth)
Is this correct? If your premiums match your company profit, can you contribute to either a pre-tax or post-tax 401(k) and have the taxes come out the same?
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