Solo 401k Contribution Limits - Is this correct?

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keyfort
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Joined: Thu Apr 04, 2019 12:46 pm

Solo 401k Contribution Limits - Is this correct?

Post by keyfort »

I'm making contributions for 2020 for my solo 401k and wanted to check if I've got this right. I used an online calculator and think I'm ok, but it's not completely clear to me.

Net business profit (as a sole proprietor) in 2020: $250,000

Therefore, as far as I can tell I can make the maximum $57,000 contribution, split between 'employer' and 'employee' contributions.

I'm not totally sure on how much of each side I can do. (I saw that the maxmium employee contribution is $19,500, but want to make sure I'm not slipping up on any other rule as it seems like there are a few that can catch you out.

For info, so far in 2020 I have made the following contributions:

Employer contribution: $30,000
Employee contribution into Roth i401k: $5,500

I'd like to make the rest of the contributions as pre-tax to lower my tax bill and am wondering how best to do so. Thank you for your help and advice, as always.
Jablean
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Re: Solo 401k Contribution Limits - Is this correct?

Post by Jablean »

Employee portion (which can go either Roth or Traditional) can have a 55+ catch up in addition to the $19,500. You have to "say" your total amount before year end but you don't have to put money in till tax time.

Employer portion always goes in Traditional - you don't have to make up your mind how much until tax time.
life in slices
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Re: Solo 401k Contribution Limits - Is this correct?

Post by life in slices »

EmployER contribution is limited to 20% of your net self-employment income, and as mentioned above needs to be pre-tax.
But it looks like you have plenty of space to do so.
terran
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Re: Solo 401k Contribution Limits - Is this correct?

Post by terran »

Yes, you seem to have it right. Anything over about $199k net business income (Schedule C line 31) allows the full $57000 contribution made up of $19.5k employee contribution and $37.5k of employer contribution. If you're over 50 years old you can also make another $6500 catch up contribution. Here's a good calculator: https://obliviousinvestor.com/solo-401k ... alculator/
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FelixTheCat
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Re: Solo 401k Contribution Limits - Is this correct?

Post by FelixTheCat »

Fidelity used to have a nice calculator. The link I normally use is replaced by a Fidelity PDF.

This one seems accurate. https://www.bcmadvisors.com/solo-401k-calculator
Felix is a wonderful, wonderful cat.
Topic Author
keyfort
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Re: Solo 401k Contribution Limits - Is this correct?

Post by keyfort »

Thank you, glad I've got it mostly right.

So I can do the rest of my contributions all pre tax, mixing employer and employee, with a max of $19,500 in employee total?

I'm under 55 so not able to do a catch up amount.

Good to know also that I don't need to make the actual transfer till tax time.
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MP123
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Re: Solo 401k Contribution Limits - Is this correct?

Post by MP123 »

keyfort wrote: Mon Dec 21, 2020 3:27 pm Thank you, glad I've got it mostly right.

So I can do the rest of my contributions all pre tax, mixing employer and employee, with a max of $19,500 in employee total?

I'm under 55 so not able to do a catch up amount.

Good to know also that I don't need to make the actual transfer till tax time.
It's 50 for 401k catchups, 55 for HSA catchups.

That might or might not be relevant for you, of course, depending on your age.
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FelixTheCat
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Re: Solo 401k Contribution Limits - Is this correct?

Post by FelixTheCat »

I max my Solo Roth 401K for employee contributions. Then I calculate and max my Solo Traditional 401K for employer contributions.

Here are the details on max contributions https://investor.vanguard.com/small-bus ... -solo-401k
Who can participate
Self-employed individuals and business owners with no common-law employees and their spouses who are employed by the business. The business owner can contribute both as an employer and employee. Also C corporations, S corporations, and limited liability companies (LLCs).

Employer contribution limits
Up to 25% of compensation* not to exceed $57,000 for the 2020 tax year and $58,000 for the 2021 tax year.
Contributions are generally deductible as a business expense and aren't required every year. When contributions are made, however, all participants must receive the same percentage.

Employee contribution limits
Employees may defer 100% of their compensation up to $19,500 for the 2020 tax year ($26,000 for employees age 50 or older) and $19,500 for the 2021 tax year ($26,000 for employees age 50 or older).
Employee contributions can be either pre-tax or after tax (Roth).

Total contributions
As a business owner, you can contribute both as an employer and employee. The combined amount of employer plus employee contributions can't exceed $57,000 for the 2020 tax year ($63,500 if age 50 or older) and $58,000 for the 2021 tax year ($64,500 if age 50 or older)
Felix is a wonderful, wonderful cat.
terran
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Re: Solo 401k Contribution Limits - Is this correct?

Post by terran »

keyfort wrote: Mon Dec 21, 2020 3:27 pm Thank you, glad I've got it mostly right.

So I can do the rest of my contributions all pre tax, mixing employer and employee, with a max of $19,500 in employee total?

I'm under 55 so not able to do a catch up amount.

Good to know also that I don't need to make the actual transfer till tax time.
Yes, as much of your contributions as you want can be traditional/tax deferred. Only employee contributions ($19.5k) can be Roth, and that is included in the limits.

Catchup contributions are available to those over 50 (not only 55) .
Topic Author
keyfort
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Re: Solo 401k Contribution Limits - Is this correct?

Post by keyfort »

terran wrote: Mon Dec 21, 2020 3:45 pm
keyfort wrote: Mon Dec 21, 2020 3:27 pm Thank you, glad I've got it mostly right.

So I can do the rest of my contributions all pre tax, mixing employer and employee, with a max of $19,500 in employee total?

I'm under 55 so not able to do a catch up amount.

Good to know also that I don't need to make the actual transfer till tax time.
Yes, as much of your contributions as you want can be traditional/tax deferred. Only employee contributions ($19.5k) can be Roth, and that is included in the limits.

Catchup contributions are available to those over 50 (not only 55) .
Thank you. I'm under 50 too, but good to be aware of that.

For now I'm doing about 80-90% as tax deferred as I expect my tax to be higher now than in retirement.. but I guess there's no way of knowing for sure so I do a bit of Roth too.
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