The retirement plan 401 k contribution is considered one of the highest in the retirement plan industry. Moreover, the type of business the plan owner has could also indicate the contribution deadline and how the contribution is made. For instance, plan owners could elect whether they want to make a profit-sharing or salary deferral contribution.
There are three most common types of businesses used as basis for the retirement plan contribution name sole proprietorship multiple member LLC, single member LLC and corporations. Check out the different facts about the Solo401 k contributions according to business type:
Salary Deferral Retirement Plan 401 k Contribution
For the employee deferral type of contribution, different business types have their required deadlines and contribution amount:
- Sole Proprietorship. Participants with this type of business and are under 50 years of age could contribute as much as $18,000. However, those who are 50 years and older are allowed an annual $6,000 catch-up contribution with their annual deferral amounting up to $24,000.
- Single Member LLC. As of 2015, the annual maximum contribution for participants of the Solo 401k retirement plan for small business is $18,000. Under the employee deferral category, plan owners who are 50 years old and above could also add $6,000 in catch-up compensation.
- Multiple Member LLC. Owners of the business under the multiple member LLC type are allowed to make $18,000 employee deferral contributions. The annual $6,000 catch up contribution is likewise allowed.
The deadline to formally elect the employee deferral contribution for all business types is December 31 of the current year. However, actual contribution could be made until the tax-filing deadline.
Profit Sharing Component
For Sole Proprietorship and Single Member, the profit sharing component of the Retirement plan 401 k follows the rules according to the Internal Revenue Code Section 401 (a)(3). The IRS code states that the profit sharing compensation for both business types is 20 percent while for the multiple member LLC, an additional 25 percent is allowed for contribution. The maximum contribution limit for the year is up to $59,000 particularly for qualified participants who are 50 years and older.
As for the contribution deadline, Sole Proprietorship and single member LLC actual contributions must be complied with by the tax-filing date. For the multiple member LLC, actual contributions are required for compliance before the tax-filing deadline.
The retirement plan 401 k offers one of the highest maximum contributions in the industry. Most importantly, it allows plan owners to have easy access and control over their retirement savings through the Checkbook Control feature.
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