[themify_col grid=”2-1 first”]The owner of a single member LLC may make employee deferral contributions of as much as $19,500 to a Solo 401(k) plan for 2020.
Those 50 and older can tack on a $6,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $26,000.[/themify_col]
Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline.
Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions.
Profit Sharing Contribution
[themify_col grid=”2-1 first”]A single member LLC business may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse.
Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation.[/themify_col]
In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (i) the deduction for half of self-employment tax and (ii) the deduction for contributions on your behalf to the Solo 401(k).
A single member LLC’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline.