Solo 401k Contribution Limits and Types

With a Solo 401(k), depending on your salary and age, you could contribute $54,000 per year or $60,000 for those 50 or older in 2017.

For 2018, the contribution limit increased to $55,000 or $61,000 if age 50 or over.

Contributions to a Solo 401(k) consist of two types

Type 1

Elective Deferral (401k) also known as Employee Contributions. The maximum elective deferral is $18,000 in 2017, or $24,000 if age 50 or older. For 2018, the elective deferral increased from $18,000 to $18,500, or $24,500 if age 50 or older.

Type 2

Profit sharing also known as Employer Contribution. This amount cannot exceed $54,000 for 2017. For 2018, this amount cannot exceed $55,000.

If your business type is a Corporation, the maximum profit sharing contribution is 25% of 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.

*IMPORTANT

If you decide to take the full $18,000 for the elective deferral (Type 1), you are limited to making $36,000 in profit-sharing contributions (Type 2) so that your contributions do not exceed $54,000 for 2017.

For 2018, If you decide to take the full $18,500 for the elective deferral (Type 1), you are limited to making $36,500 in profit-sharing contributions (Type 2) so that your contributions do not exceed $55,000

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.

Contribute to Multiple 401(k) Plans

To learn how to shelter more of your earnings, click here 

Calculate your maximum contribution

Use our free Solo 401 Contribution Calculator. All you need to do is enter your name, age and income — you’ll get a contribution comparison between a Solo 401(k), SIMPLE, and SEP IRA.

Who may establish a Solo 401k?

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).

By when does a Solo 401(k) have to be established?

An employer must establish the plan by the end of the tax year for which the tax deduction is desired. For example, an employer operating the plan on a calendar-year basis must complete the plan documentation no later than December 31.

Profit Sharing Contribution QUESTION:

Does that mean that for 2017 my wife and I could EACH contribute up to $108k in Type 2 contributions into our respective Solo 401k plans (so ~$54k *2 = $108k theoretical max contributions).

ANSWER:

Yes provided you each separately have enough net self-employment income to satisfy said contribution amounts.

Salary QUESTION:

Does my wife need to be paid a salary from the business before the business can make a Type 2 contribution on her behalf?

ANSWER:

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:

If my wife already maxed our her Type 1 contribution from her ‘day job’, and assuming I had the necessary net business income, could I theoretically make the max $54k contribution entirely as a Type 2 contribution?

ANSWER:

No as employee contributions are capped at $18,000 (plus a $6,000 catch-up if age 50 or older) per participant.

Do I have to Make Contributions QUESTION:

What is the minimum I should contribute every year to keep my Solo 401k in good standing with the IRS?

ANSWER:

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 70 1/2,  you are not required to make annual solo 401k contributions in order to continue with the solo 401k plan.

Contribute to Solo 401k and Day-Time Job 401k QUESTION:

As a W-2 employee, participating in her employer’s 401K already, how much can she contribute to our SOLO 401K PLAN each year?  She is 58 years old.

ANSWER:

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 2017: (i)  up to $24,000 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 $60,000.

Documenting Contribution QUESTION:

I set up the solo 401k bank account with Bank of Arizona and I deposited $18k for annual contribution for 2017.  Do you need any information on this or would it just be year end reporting?

ANSWER:

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.

 

 

 

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