Solo 401k Contributions: What You Need to Know
The high limit of Solo 401k contributions increase the ability for the self-employed to grow their retirement funds.
Although the self-employed have a variety of retirement options, there is perhaps none so powerful as the Solo 401k. The Solo 401k plan opens investment doors beyond SEP-IRAs, profit-sharing or money purchase plans. Small business owners can now do even more with their money.
They can also increase their cash flow through alternative investment options, such as real estate. The plan has a useful participant loan feature as well, which allows the participant to borrow up to $50,000 or 50% of their account value tax-free and penalty free.
Understanding the contributions
In 2015, the Solo 401k contributions is $53,000 or $59,000 if age 50 or older. Having a spouse on the company’s payroll also allows the spouse to participate and contribute to the plan. An employed spouse can make elective deferrals to the plan. Along with the business’s profit-sharing contribution, this allows the business owner to minimize the taxable income and his or her tax liability. Note that employment taxes on salary must be calculated first, before contributions can be calculated.
If both spouses are participating, their combined contribution can be up to $106,000 for 2015. The contribution limit is per participant. The maximum is $53,000 per person for 2015. Each individual can also defer an additional $6,000 each year as a catchup contribution if age 50 or over.
The plan also allows contributions to the Roth Solo 401k. Participants can elect to make their employee contributions as Roth. In 2015, the salary deferral contribution limit was $18,000 or $24,000 if age 50 or older.
Note: The profit sharing portion of a Solo 401k plan does not allow for Roth contributions.
Solo 401k contributions can be adjusted up or down or skipped completely if business is down for the year. This provides the flexibility to decide how and when contributions are made.
Related Terms:
- Solo 401k contributions
- Solo 401k contribution deadline
- Solo 401k contribution limits
- Roth Solo 401k
- Solo 401k Roth
- Individual 401k Roth
