Solo 401k Limit 2016 Announced | Solo 401k Contributions
The Solo 401k plan is known for having the one of the highest contribution limits among qualified retirement plan. The contribution limit can change or remain the same each year, depending on the cost of living adjustments. Recently, the IRS announced the Solo 401k limit 2016 based on this year’s statistics and indicators.
Breakdown of Solo 401k Contribution Limit
Unlike many traditional retirement plans, the Solo 401k plan is created for self-employed individuals and business owners without any employee. Being the sole participants, the business owners can contribute both as the employer and the employee.
Solo 401k contributions consist of salary deferral and profit sharing. This allows plan owners one of the highest contribution limits among qualified retirement plans.
Solo 401k Limit 2016
In the latest announcement, the IRS stated that the cost of living adjustments did not rise enough to prompt an increase in contribution limits to retirement plans in 2016. The Solo 401k limit 2016, therefore, will remain at the current level.
For 2016, the salary deferral contribution will stay at $18,000 a year. Plan participants over 50 years old can still opt for the catch-up contribution of $6,000, bringing the maximum salary deferral limit to $24,000.
The profit sharing contribution is still limited to 20 to 25% of the business income, depending on the type of sponsoring business. The total Solo 401k limit 2016, including both the salary deferral and profit sharing, will be capped at $53,000 a year ($59,000 including catch-up contribution).
Tax Benefits, Total Control and Diversified Investments
With the generous contribution limit, even without an increase this year, the Solo 401k plan can still offer great tax benefits to the plan owner. Thanks to the tax-deferral benefit, plan owners can lower their income taxes for the immediate year. The fund can then grow tax-deferred. The earned investment profit can be re-invested in full and grow uninterruptedly.
One of the biggest advantages of the Solo 401k plan is that the plan owners can take full control and invest in almost every investment available. With the high contribution limit, plan owners can shelter more of their money into the plan. This, coupled with the flexible investment options, allow plan owners to create a well-diversified portfolio and accelerate their wealth building.