This post discusses how much self-employment income a self-employed individual needs to maximize year 2024 solo 401k contributions for a Sole Proprietorship, Single Member LLC, 1099-NEC, or Independent Contractor self-employed business. For 2023 contributions, click here.
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Year 2024 Scenario #1 – Maximize Solo 401k Contributions While Keeping Self-Employment Income as Low As Possible
Assumptions
- Self-employed business taxed as Sole Proprietor, Single Member LLCs, 1099-MISC/NEC Independent Contractor
- One Participant
- Does not make contributions to another plan (“day job” 401k)
- Contribute 100% of self-employment compensation (i.e. Line 31 of Schedule C less one-half of self-employment tax)
- Only Make Employee Contributions (Salary Deferrals)
Self-Employment Income Needed:
- Line 31 of Schedule C: $24,749 (or $32,819 if 50 or older)
- Self-Employment Compensation: $23,000 (or $30,500 if 50 or older)
Contribution Amounts:
- Employee (Pre-tax or Roth): 100% of Self-Employment Compensation up to $23,000 for 2024 or $30,500 if age 50 or older [100% of Self-Employment Compensation up to $23,000 for 2024 plus $7,500 catch-up contribution if age 50 or older]
- Employer Pre-tax Contributions: $0
- Voluntary After-Tax: $0
Year 2024 Scenario #2 – Maximize Solo 401k Contributions While Keeping Self-Employment Income Low
Assumptions
- Self-employed business taxed as Sole Proprietor, Single Member LLCs, 1099-MISC/NEC Independent Contractor
- One Participant
- Does not make contributions to another plan (“day job” 401k)
- Contribute 100% of self-employment compensation (i.e. Line 31 of Schedule C less one-half of self-employment tax)
- Make Employee (Salary Deferrals) and Employer (Profit-Sharing) Contributions
Self-Employment Income Needed:
- Line 31 of Schedule C: $30,935 (or $41,023 if 50 or older)
- Self-Employment Compensation: $28,749 (or $38,124 if 50 or older)
Contribution Amounts:
- Employee (Pre-tax or Roth): Up to (i) $23,000 for 2024 or (ii) $30,500 if age 50 or older [100% of Self-Employment Compensation up to $23,000 for 2024 plus $7,500 catch-up contribution if age 50 or older]
- Employer Pre-tax Contributions: (i) $5,749 or (ii) $7,624 if age 50 or older [20% of Self-Employment Compensation provided total contributions don’t exceed overall limit]
- Voluntary After-Tax: $0
Year 2024 Scenario #3 – Maximize Pre-Tax Solo 401k Contributions
- Assumptions
- Self-employed business taxed as Sole Proprietor, Single Member LLCs, 1099-MISC/NEC Independent Contractor
- One Participant
- Does not make contributions to another plan (“day job” 401k)
- Maximize Pre-tax Solo 401k Contributions to Reduce Taxable Income
- Make Employee (Salary Deferrals) and Employer (Profit-Sharing) Contributions
Self-Employment Income Needed:
- Line 31 of Schedule C: $243,717
- Self-Employment Compensation: $230,000
Contribution Amounts:
- Employee (Pre-tax): Up to (i) $23,000 for 2024 or (ii) $30,500 if age 50 or older [100% of Self-Employment Compensation up to $23,000 for 2024 plus $7,500 catch-up contribution if age 50 or older]
- Employer Pre-tax Contributions: $46,000 [20% of Self-Employment Compensation provided total contributions don’t exceed overall limit]
- Voluntary After-Tax: $0
Year 2024 Scenario #4 – Maximize Roth Solo 401k Contributions
Assumptions
- Self-employed business taxed as Sole Proprietor, Single Member LLCs, 1099-MISC/NEC Independent Contractor
- One Participant
- Does not make contributions to another plan (“day job” 401k)
- Goal is to Maximize Roth Solo 401k and/or Voluntary After-Tax Contributions
- Note: Assume all Employer Contributions made as Pre-tax because making Employer Contributions as Roth contributions offers no substantive advantage over Mega Backdoor Roth Solo 401k Contributions.
Self-Employment Income Needed:
- Line 31 of Schedule C: $74,246 (or $82,316 if 50 or older)
- Self-Employment Compensation: $69,000 (or $76,500 if 50 or older)
Contribution Amounts:
- Employee (Pre-tax): Up to (i) $23,000 for 2024 or (ii) $30,500 if age 50 or older [100% of Self-Employment Compensation up to $23,000 for 2024 plus $7,500 catch-up contribution if age 50 or older]
- Employer Pre-tax Contributions: $0
- Voluntary After-Tax: $46,000 [Lesser of Self-employment compensation or the overall limit of ($69,000 for 2024) reduced by any employee or employer contributions made to the Solo 401k]
