Author Topic: Individual 401k Business Requirements  (Read 289 times)

Ready2Save27

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Individual 401k Business Requirements
« on: November 04, 2019, 08:14:26 PM »
Hi MMM Community!

What are the requirements/restrictions to open/use an individual 401k as a small business owner?

A little background about me/my business. I am employed at a regular company with a crappy 401k. I have a small business (not profitable yet as I just started. Goal is to make $10k/yr, low risk and low capital investment, but modest gains). I have no employees, but am registered as an LLC with my state (Im in the US)

Can I open up an individual 401k given my circumstances? I plan to fund it with the income from my main job and would stay under the IRS contribution limits with both 401ks combined. Can I contribute more than $19,000 to an individual 401k (I think max is $55,000 total including employer contributions).

If anyone has links to relevant rules/regulations or could point me in the right direction, it would be greatly appreciated.

seattlecyclone

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Re: Individual 401k Business Requirements
« Reply #1 on: November 04, 2019, 08:26:28 PM »
Yes, you would be able to open up an individual 401(k) for your business. The catch is that your contribution to that account would be limited to the earnings from that business (after deductible business expenses). If you want to contribute $19k to the 401(k) for your business you'll need to actually earn that much from the business.

These plans have such high limits because you're wearing two hats as a self-employed person: you are the employee and the employer at the same time.

Wearing your employee hat, you can put in 100% of your net earnings up to the standard $19k employee contribution limit, just like you could as an employee with a permissive 401(k) plan.

Past the $19k limit you'll need to put on your employer hat. You're essentially making matching contributions at this point. You can't contribute 100% of earnings for these, it's more like 20%, so to get the full $55k into your solo 401(k) your business will need to pull in a six-figure sum.

Here's a good link about your options as a self-employed person.
« Last Edit: November 04, 2019, 08:28:50 PM by seattlecyclone »

Ready2Save27

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Re: Individual 401k Business Requirements
« Reply #2 on: November 05, 2019, 04:47:21 AM »
Thank you for taking the time to reply, it was extremely helpful!