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 

Solo 401k Contribution Calculation is Based on Type of Self-Employed Business

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.

Qualifying for a Solo 401k Plan: 

Who can open 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:

By when does the solo 401k have to be opened?

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.

December 31, 2017 Solo 401k Setup Deadline QUESTION:

I will need to set up account by end of year correct?

If you are self-employed and open a solo 401k plan by December 31, 2017, you will be able to wait until next year (2018) to contribute $54,000 plus an additional $6,000 if you turn 50 in 2017 or are already over age 50.  This essentially means that you simply need to sigh the solo 401k documents by December 31, 2017 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:

For 2018 I plan on getting paid through an LLC, does this have an effect on my solo 401k if established this year? For 2017 I am an independent contractor with no LLC or corp set up.

You can still setup the solo 401k in 2017 under your sole proprietor business. Next year, 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 2018 annual solo 401k contributions would be based on your new self-employment income and you would have until 2019 to make those contributions.

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).

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?

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 $55k contribution entirely as a Type 2 contribution?

First, your wife’s contributions have no impact on your contributions because the contribution limits are per participant. However, correct that employee contributions (Type 1) are capped at $18,500 for tax year 2018 (plus a $6,000 catch-up if age 50 or older) between all 401k plans. Therefore, if your wife has already maxed out the $18,500 employee contribution (Type 1) to her day job 401k plan, 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:

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

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 for Wife QUESTION:

do I need to make equal solo 401k contributions for me and my wife or can they be different?

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:

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.

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.

SIMPLE IRA and Solo 401k Contribution QUESTION:

I wanted to confirm if I’m correct in making contributions into my solo 401K for this year. For this year, I’m guessing I will just deposit my annual contributions into the solo 401K account?

Have you made any SIMPLE IRA contributions for 2018? 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:

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?

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:

Can you count guarantee payments from a partnership for purposes of the solo 401(k) contribution calculation?

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:

We are an LLC taxed as an S-Corp. It appears that I may make a solo401k contribution for myself and my spouse but we have to take w-2 income from the company, Correct?

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:

I am a cpa - I have a client (s-Corp) who has a solo 401k. They went on extension but there was mixup and the return was filed without a solo 401k deduction and without the contribution being made. Since it is still in the extension period can the contribution be made and the return amended?

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:

I read your article entitled “Does contributing to my Solo 401k Plan affect my eligibility to contribute to my IRA?”

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 2017, if you are covered by a retirement plan, your deduction for contributions to a traditional IRA is reduced (phased out) if your AGI is:

  • More than $99,000 but less than $119,000 for a married couple filing a joint return or a qualifying widow(er),
  • More than $62,000 but less than $72,000 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:

I do have a question regarding vesting and contributions. We can have all contributions vest immediately correct? And I can do profit sharing etc without worrying about any Safe Harbor provisions (because this is a Solo 401k). So as long as I do not have any employees I will have full flexibility correct?

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:

In summary, I think I should be able to contribute more to my solo 401K than is shown in your online calculator because I have already paid all my payroll taxes through an employer so my SE tax due is only $798 (per Turbo tax (not yet filed)) vs. $2,104 (shown in your calculator) which reduces how much it says I can contribute.
Good question. While you have already paid all of you payroll taxes (i.e., social security and medicare) through your W-2 employer, this has no  impact when calculating the solo 401k contribution as the contribution still requires the reduction of 1/2 of self-employment tax if the self-employed business is a sole proprietorship.
In other words, the fact that you have already paid some or the maximum payroll tax through your day job  means that you may or may not owe additional social security and medicare tax, but this does not mean that 1/2 of self-employment tax  does not need to be reduced from line 31 of Form Schedule C when performing the solo 401k contribution calculation.

Existing Solo 401k QUESTION:

If I have an existing individual 401k plan at a brokerage, can I adopt your plan as a restatement of my existing plan? Do I need to do that by end of this year in order to make after-tax non-roth contributions (which are not stated as an option in my current plan)?
 Yes you would need to change / restate the individual 401k to our solo 401k plan this year in order to preserve the right to make Roth and/or after-tax contributions for 2018 by your tax return deadline next year.

Direct-Rollover Contribution Reporting QUESTION:

I am in the process of completing my 2017 tax return and have questions about reporting requirements for my solo 401k plan. I opened the solo 401k account early last year and funded it through a partial distribution from my rollover IRA with E-TRADE. E-TRADE provided me with a 1099-R for the amount of the distribution and they listed a code G in box 7. What form is needed for the IRS to show that the full amount was rolled into my self-directed 401k? I want to be sure that I am in compliance with IRS regulations
 Because they used code “G” in box 7 of Form 1099-R, that means they already treated the movement of the IRA funds to the solo 401k plan as a nontaxable direct-rollover (IRA to solo 401k plan); therefore, the Form 1099-R that you received from E-TRADE is for your records and does not get filed with the IRS as E-TRADE will also submit a copy to the IRS.
Essentially, by using code “G,” they are communicating to the IRS that the IRA direct-rollover check was deposited into the solo 401k account not your personal bank account.

State/City Tax Contributions QUESTION:

For contributions, is the solo 401k also tax exempt for state and local income tax purposes? Non-income tax?
Pre-tax contributions to a 401k are exempt from federal taxes as well as most state and local taxes.  You may wish to check with your state and/or local tax agencies.  Here is a link to the state tax agencies: https://www.irs.gov/tax-professionals/government-sites

Flow of  Contributions QUESTION:

I know that since my self-employed business is an S-corporation that the contributions are based upon W-2 earnings, but do they have to come out of payroll or can they be made from my personal bank account?
From a Solo 401(k) perspective, what matters is that the contributions (employee and employer) are made based on W-2 wages. Therefore, regardless if the funds first flow from the Corporation bank account to your personal bank account and then to the solo 401k plan, it will still satisfy the solo 401k contribution rules (i.e., both the employee and employer contributions were made by your business tax return due date and were based on W-2 wages from the S-corporation).

Extension Apply to Both Contribution Types QUESTION:

My LLC filed for a tax extension-does that mean I do not need to make any contributions (including my personal share) until the extension deadline?

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 isMarch 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 isMarch 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:

I'd like to move ~$35K into my Solo401K from an existing IRA. Would that have any impact on my contribution limits this year? And, is there a certain form I should use?

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.

SOLO 401(K)

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