Section 415 of the Internal Revenue Code is where you can find the contribution limits that apply to 401k plans including solo 401k plans.
- One’s contributions to a Solo 401k can’t exceed the self-employment compensation (i.e. one can’t save more than they earn).
- Moreover, one can only make Solo 401k contributions based on one’s earned self-employment income (i.e. one can’t use w-2 wages from one’s day job to make such contributions).
What is Earned Income for Solo 401k Contribution Purposes?
- You can only make solo 401k contributions if you have net earnings from work performed in your trade or business.
- Net earnings must be derived from personal services (not investment income) performed by the self-employed business owner. If the trade or business operates at a loss for the year, you will not be able to contribute to the plan.
- If you fully own more than one business ( they are under your control) and have net earnings from each business, then contributions to the solo 401k plan will be based on net earnings from each business. VISIT HERE for more on this aggregation rule.
For a Partnership (e.g., an LLC taxed as a Partnership)
Self Employment Income Compensation Limits for 2022 and 2023
IRS records show that, in Tax Year 2014, an estimated 53 million taxpayers contributed almost $255 billion to tax-qualified deferred compensation plans. A popular form of deferred compensation plans, known as a solo 401(k) plans, permits employees to save for retirement on a tax-favored basis.
Video Slides: 2022 & 2023 Self-Directed Solo 401k Contribution Limits and Types
With a Solo 401(k), depending on your salary and age, you can contribute $61,000 per year or $67,500 for those 50 or older in 2022.
For 2023, the contribution limit increased to $66,000 or $73,500 if age 50 or over.
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Solo 401k contributions are
Contributions to a Solo 401(k) consist of two types
Elective Deferral (401k) also known as Employee Contributions. The maximum elective deferral is $20,500 in 2022, or $27,000 if age 50 or older. For 2023, the elective deferral increased to $22,500, or $30,000 if age 50 or older.
Profit sharing also known as Employer Contribution. This amount cannot exceed $61,000 for 2022. For 2023, this amount cannot exceed $66,000.
If your business type is a Corporation, the maximum profit sharing contribution is 25% of the employees W-2 gross income and still subject to the above profit sharing amounts.
If your business type is a Sole Proprietor/Partnership, the maximum profit sharing contribution is 20% of net income and still subject to the above profit sharing amounts.
If you decide to take the full $20,500 for the elective deferral (Type 1), you are limited to making $40,500 in profit-sharing contributions (Type 2) so that your contributions do not exceed $61,000 for 2022.
For 2023, If you decide to take the full $22,500 for the elective deferral (Type 1), you are limited to making $43,500 in profit-sharing contributions (Type 2) so that your contributions do not exceed $66,000.
Note: Catch-up contributions are allowed for participants who are at least age 50 by year-end.
Note 1: With the passage of SECURE 2.0 Act on December 29, 2022, the employer/profit sharing contribution can now also be applied as a Roth solo 401k contribution or can continue to be made as pretax contribution.
Note 2: The Roth solo 401k contributions can now be applied as employee and/or or employer contributions. however, the catch-up contribution for those aged 50 or older can only be made from the employee contribution source and can be applied as pretax or Roth solo 401k contribution. Therefore, if age 50 or older in 2022 the employee Roth solo 401k contribution is $27,000 ($20, 500 + $6,500). For 2023, if you are aged 50 or older, the employee Roth solo 401k contribution increased to $30,000 ($22,500 + $7,500)
Note 3: Catch-up contributions are allowed for participants who are at least age 50 by year-end.
Rollover Contributions and Direct Transfer
You may “roll over” into your Solo 401(k) amounts you have in another 401(k), a governmental 457(b) plan or a 403(b) plan. You may also “roll over” amounts you have in an IRA (other than a Roth IRA) into your Solo 401(k).
There are no limits on the amount that you can Rollover or Transfer.
2022 Annual Solo 401k Contribution Deadlines
The solo 401k contribution deadlines depend on your self-employed business type and business tax return due date. Contributions to a solo 401k plan must be made by your business tax return due date plus timely filed extensions.
2023 Annual Solo 401k Contribution Deadlines
Contribute to Multiple 401(k) Plans
To learn how to shelter more of your earnings, click here.
Solo 401k Contribution Calculation is Based on Type of Self-Employed Business
- Sole Proprietor Contribution Calculation
- Partnership Contribution Calculation
- Corporation Contribution Calculation
Calculate your maximum contribution
Use our Solo 401 Contribution Calculator. You will get a contribution comparison between a Solo 401(k), SIMPLE, and SEP IRA.
Claiming the Solo 401k Contribution Deduction:
Roth solo 401k and voluntary after-tax contributions are not tax deductible, but pretax solo 401k contributions are deductible. Claiming the pretax contribution deduction is driven by the type of self-employed business sponsoring the solo 401k plan. See the following chart to determine where to claim pretax solo 401k contributions.
Solo 401k Contribution Guides-Deep Dive
Sole Proprietorship, Independent Contractor, Schedule C, LLC Taxed as Sole Proprietorship, 1099-NEC Independent Contractor
- Slides: Sole Proprietorship, Single-member LLC or 1099 Independent Contractor
- Video: https://youtu.be/8onHLHcW3eQ
S-corp., C-corp., LLC Taxed as S-corp., W-2
- Slides: S-corporations, C-corporations, LLC taxed as S-corp./C-corp., W2
- Video: https://youtu.be/gsKpU5nu5jk
Partnership, LLC Taxed as Partnership (Form 1065-K)
- Slides: Partnership, Multi-Member LLC (1065-K-1)
- Video: https://youtu.be/vdW_-Vo_Sns
Mega Backdoor Roth Solo 401k Guides- Deep Dive
- Slides: Partnerships, LLC taxed as Partnership, Form 1065 Schedule K-1
- Video: https://youtu.be/P6GX49KpHOk
- Slides: S-corporations, C-Corporations and LLC taxed as S-corporation
- Video: https://www.youtube.com/live/aAzvD7vss1E
- Slides: Sole Proprietors, LLC taxed as Sole Proprietorship, Independent Contractors, 1099-NEC
- Video: https://youtube.com/live/4TiqrmxOExc
Qualifying for a Solo 401k Plan:
Generally, any business may adopt a Solo 401(k). The business need not assume any particular legal form. Thus, a self-employed business owner, a partnership, a limited liability company (LLC), or any type of corporation (including a Sub-chapter S corporation) may adopt a Solo 401(k).
Solo 401(k) Establishment Deadline:
For 2022, in order to make employee contributions for 2022, the self-employed business owner has to establish/adopt (i.e., sign the solo 401k establishment documents including the Adoption Agreement) by December 31, 2022. However, if the plan is established on January 1, 2023 or after by your business tax return due date including the business tax return extension, then you cam still make employer profit sharing contributions for 2022 but cannot make employee contributions. For example, an employer operating the plan on a calendar-year basis has to complete the solo 401k plan documentation no later than December 31, 2022.
For makin 2022 solo 401k plan contributions, the solo 401k has to be adopted by December 31, 2022 for self-employed businesses operating the plan on a calendar-year basis in order to preserve the right to make both employee and employer contributions in 2023 for 2023 by the business tax return including business tax return extensions. Otherwise, if the solo 401k plan is adopted on January 1, 2023 or after but by your business tax return due date including extensions, you will only be allowed to make employer contributions not employee contributions to the solo 401k plan. To learn more about the December 31, 2022 plan adoption/establishment deadline VISIT HERE.
December 31, 2022 Solo 401k Setup Deadline QUESTION:
If you are self-employed and open a solo 401k plan by December 31, 2022, you will be able to wait until next year (2023) to contribute $61,000 plus an additional $6,500 if you turn 50 in 2022 or are already over age 50. This essentially means that you simply need to sign the solo 401k documents by December 31, 2022 so that you can wait until next year to both open the solo 401k bank account and make both annual solo 401k contribution types (employee and employer).
Change in Business Name Affect on Contributions QUESTION:
You can still setup the solo 401k in 2023 under your LLC business. Next year in 2024, we can update the plan to list the new self-employed business. All else would remain the same (e.g., same plan name, same bank account for the solo 401k, etc.). The 2024 annual solo 401k contributions would be based on your new self-employment income and you would have until 2025 to make those contributions.
Profit Sharing Contribution QUESTION:
Yes, provided you each spouse separately has the necessary net self-employment income to satisfy said contribution amounts, as solo 401k contributions are based on each participants separate (NOT the combined) net self-employment income. For example, if the self-employed business is an LLC that is taxed as as sole proprietorship, both spouses will need to file a separate Schedule C and their solo 401k contributions will be based on their respective Schedule C net self-employment income figure, so line 31 of the Schedule C.
Good question and the answer is yes. In order for either spouse to contribute to the solo 401k plan, whether employee or employer contributions, the spouse that wants to contribute to the solo 401k plan has to have net self-employment income.
Employee Contribution QUESTION:
First, your wife’s contributions have no impact on your contributions because the contribution limits are per participant. However, you are correct that employee contributions (Type 1) are capped at $20,500 for tax year 2022 (plus a $6,500 catch-up if age 50 or older in 2022) between all 401k plans. Therefore, if your wife has already maxed out the $20,500 employee contribution (Type 1) to her day job 401k plan for 2022, then she can only make the profit sharing contribution (Type 2) to the solo 401k plan and it would be based on her net self-employment income from the business that sponsors the solo 401k plan. You on the other hand, can make both the employee (Type 1) and profit sharing contributions (Type 2) to the solo 401k plan if you have net self-employment income and have not contributed to any other 401k plan.
Do I have to Make Contributions QUESTION:
While one of the benefits available under a retirement plan such as a solo 401k plan is the ability to make annual contributions even if you are over age 72, you are not required to make annual solo 401k contributions in order to continue with the solo 401k plan.
Contribute for Wife QUESTION:
Because a solo 401k plan is only for owner-only businesses, equal contributions do not apply; therefore, just one spouse can contribute while other does not.
Contribute to Solo 401k and Day-Time Job 401k QUESTION:
Your wife’s ability to contribute to a solo 401(k) depends on the self employment income that she receives from the partnership. Specifically, in order to determine how much she could contribute to the solo 401(k) she would take the amount reported on line 14 of her K-1 and reduce it by one half of the self-employment tax. Of that number, she could contribute for 2022: (i) up to $27,000 as an employee contribution (less any amount contributed as an employee contribution to her 401(k) plan sponsored by her daytime employer); and (ii) a profit-sharing contribution to the solo 401(k) equal to 20% of that same number (i.e. line 14 from her K-1 -1/2 of the self-employment tax) provided that her overall contribution to the solo 401(k) cannot exceed $67,500 for 2022. For 2023, the overall limit is $73,500.
SIMPLE IRA and Solo 401k Contribution QUESTION:
Have you made any SIMPLE IRA contributions for 2022? If you have not, do not make it to the SIMPLE IRA if the SIMPLE IRA is also for your self-employed business, as the IRS rules do not allow contributions in the same year to both a solo 401k and a SIMPLE IRA.
Documenting Contribution QUESTION:
You don’t need to inform us of the contribution or submit a contribution form. However, you will need to report the contribution to the IRS when you file your taxes. Also, you can use the annual contribution form located on our forms page to internally document the annual contribution.
Guaranteed Payments Partnership QUESTION:
It depends on whether or not those guaranteed payments are reported on line 14 of the K-1, as contributions to a solo 401k plan must be based on earned income from self-employment activity not passive or investment income.
S-Corp Contribution QUESTION:
Correct since earned income for an S-corp is reported on a W-2. Both the employee and profit sharing contribution is based on W-2 wages, and each spouse, provide they receive W-2 wages from the self-employed business, can make solo 401k contributions.
S-Corp Tax Return Amendment QUESTION:
Yes since a timely business tax return extension was filed. The solo 401k contribution rules allow for contributions of both the employee and employer by September 15 if a tax return extension is timely filed. See IRS Publication 560 for more information surrounding the contribution deadlines.
Tax Deductible IRA Contributions if I have a Solo 401k QUESTION:
My question: As my wife and I are *not* contributing to our solo401k plan, does that mean that we are not active participants and IRA contributions are tax deductible? (We do exceed the MAGI levels.)
Good question. Yes, you are still considered “covered by a retirement plan at work” even if you are not making solo 401k contributions.
While you can still contribute to a traditional IRA, your traditional IRA contribution deductions will be reduced (phased out) if your AGI is a certain amount.
For 2022, if you are covered by a retirement plan including a solo 401k plan, your deduction for contributions to a traditional IRA is reduced (phased out) if your AGI is:
- More than $109,000 but less than $129,000 for a married couple filing a joint return or a qualifying widow(er),
- More than $68,000 but less than $78,000 for a single individual or head of household, or
- Less than $10,000 for a married individual filing a separate return.
Vesting and Safe Harbor QUESTION:
In short your understanding is correct, as solo 401k is not subject to the safe harbor rules since it is 401k for owner-only employees. Same with vesting, all contributions are fully vested immediately because it is a 401k plan sponsored by a self-employed business with no common law employees.
Already Paid Payroll Tax Through Employer QUESTION:
Existing Solo 401k QUESTION:
Direct-Rollover Contribution Reporting QUESTION:
State/City Tax Contributions QUESTION:
Flow of Contributions QUESTION:
Extension Apply to Both Contribution Types QUESTION:
Self-directed 401k contributions (both employee and employer) deadlines are based on the type of entity sponsoring the solo 401k so you are correct. Please see the following.
- If the entity type is a Sole Proprietorship, the annual solo 401k contribution deadline is April 15, or October 15 if tax return extension is timely filed.
- If the entity type is an LLC taxed as an S-Corporation (calendar year), the annual solo 401k contribution deadline is March 15, or September 15 if tax return extension is timely filed.
- If the entity type is an LLC taxed as a Partnership (calendar year), the annual solo 401k contribution deadline is March 15, or September 15 if tax return extension is timely filed.
- If the entity type is a Partnership (calendar year), the annual solo 401k contribution deadline is March 15, or September 15 if tax return extension is timely filed.
- If the entity type is an S-Corporation (calendar year), the annual solo 401k contribution deadline is March 15, or September 15 if tax return extension is timely filed.
- If the entity type is an C-Corporation (calendar year), the annual solo 401k contribution deadline is April 15, or September 15 if tax return extension is timely filed.
Do Direct-Rollovers Impact Annual Contribution Limits QUESTION:
No direct-rollovers from an IRA to a Solo 401(k) plan do not count towards your annual contribution to the solo 401k plan. You can directly rollover unlimited amounts from an IRA to a Solo 401(k) plan without affecting your annual Solo 401(k) contribution limits. We will prepare an IRA transfer form as your solo 401k provider.
Income Earned From Non-Professional Trustee QUESTION:
No it cannot because the fees received by such individuals are not subject to SE tax and are not earned income for solo 401k or IRA contribution purposes.
Matching Contributions QUESTION:
No. Matching contributions only apply to full-time employer 401k plans, not self-employed solo 401k plans (i.e., 401k plans for owner-only businesses). A solo 401k only consists of employee and profit-sharing contributions. Matching is when the employer matches what the employee has contributed. Profit-sharing contributions are employer contributions as well but are not based on whether the non-owner employee has contributed.
Roth IRA Conversion Effect On Solo 401k Contributions QUESTION:
conversion affect the self-employment income (net income) figure with
respect to being able to make annual solo 401k contributions, whether Roth
or pretax contributions?
No; any amounts converted from a traditional IRA to a Roth IRA would not
have an impact on self-employment income; therefore, the owner-only business owner can make annual solo 401k contributions regardless of any Roth IRA conversions processed during the year.
Contractor Net-Income QUESTION:
The solo 401k contribution is based on net self-employed income so line 31 of Schedule C. You then plug line 31 into our solo 401k contribution calculator to determine the allowed solo 401k contribution amount, as the calculator will subtract 1/2 of self-employment income tax when performing the calculation. Visit here to view our sole proprietor page.
Health Insurance/Medical Reimbursement QUESTION:
The amount of self-employed income subject to payroll taxes or self-employment tax is earned compensation. The medical reimbursement income is not able to be used to justify a higher contribution to the solo 401k.
All Three (3) Contribution Types QUESTION:
Yes our plan allows for all three contribution types (pretax, Roth and voluntary after-tax) and in that case you would need to keep the funds in separate sub-accounts (i.e. one in the name of the solo 401(k) for pretax funds, a second separate account in the name of the solo 401(k) for Roth funds, and a third one in the name of the solo 401(k) for the voluntary after-tax funds).
Distinguishing 2022 from 2023 Contributions QUESTION:
You will differentiate your your 2022 contributions (both the employee and employer), which can be made by your business tax return plus timely filed extension, from your tax year 2023 contributions by reporting them in the appropriate years Form 1040 tax return since your self-employed business is a sole proprietor.
Outstanding Solo 401k Participant Loan Contributions QUESTION:
As long as the individual has net self-employment income from the self-employed business that sponsors the solo 401k plan, solo 401k contributions are permitted even if the participant has outstanding solo 401k participant loans.
Allocating Employee Contributions QUESTION:
In short yes. It is important to first understand the total contribution limit to a solo 401k cannot exceed $61,000 for 2022, not counting the catch-up contributions for those age 50 and over. The contributions made to the Roth solo 401k designated account will reduce the amount of contributions that you can make to the pretax solo 401k designated account. Only employee contribution may be made to the Roth solo 401k; therefore, if you make the full $20,500 employee contribution to the Roth solo 401k for 2022, then you won’t be able to make any employee contribution to the pretax solo 401k because you will have exhausted the full $20,500 employee contribution on the Roth solo 401k. Note that you can also split up the $20,500 employee contribution between both the pretax solo 401k and Roth solo 401k designated accounts. Lastly, you also have an additional $6,500 of catch-up contributions to work with if you are age 50 or older in 2022 since the catch-up contribution falls under the employee contribution umbrella and can thus be allocate between the Roth solo 401k and the pretax solo 401k designated account.
Mega Back Door Roth Solo 401k Contribution Limit QUESTION:
Yes and see the following.
- The overall limit in 415C (i.e. $61,000 for 2022, and $66,000 for 2023) applies on a per employer basis Provided that the employers are unrelated.
- This limit is applied without consideration of contributions made to a plan sponsored by an unrelated employer
- The elective deferral limit in 402G (i.e. $20,500 for 2022; $22,500 for 2023) applies only to elective deferrals and does not impact after-tax contributions
- Here is an Example:
- For 2022, an individual contributes $20,500 of the elective deferrals to a 401(k) plan sponsored by his W-2 employer & additional matching and profit-sharing contributions are made up to the limit of $61,000
- Individual has an S-corp side business with no employees that generates self-employment income (i.e. compensation) greater than $61,000 for 2022.
- The individual can contribute after-tax contributions up to $61,000 for 2022 to the solo 401(k) sponsored by side business and subsequently convert the voluntary after-tax funds to a Roth IRA or to the Roth Solo 401k.