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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: fiveoh on April 24, 2016, 04:34:51 PM

Title: What's my max solo 401k contribution?
Post by: fiveoh on April 24, 2016, 04:34:51 PM
I've been googling for a while but I'm still hazy on this.  I have a regular job with no retirement plan and a small side income.  Let's say I make 5k from the side income.  What's the max I can contribute to a solo 401k?  5k?
Title: Re: What's my max solo 401k contribution?
Post by: protostache on April 24, 2016, 05:04:43 PM
Straight from the IRS's website (https://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans):

Quote
Contribution limits in a one-participant 401(k) plan

The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:
  • Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit: $18,000 in 2015 and 2016, or $24,000 in 2015 and 2016 if age 50 or over; plus
  • Employer nonelective contributions up to 25% of compensation as defined by the plan, or
    for self-employed individuals, see discussion below

If you make $5,000 you can contribute $5,000. If you make $20,000 you can contribute $20,000 ($18,000 elective deferral + $2,000 non-elective deferral to hit 100% compensation). The math only gets interesting once you get above $24,000.
Title: Re: What's my max solo 401k contribution?
Post by: fiveoh on April 24, 2016, 05:09:35 PM
Straight from the IRS's website (https://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans):

Quote
Contribution limits in a one-participant 401(k) plan

The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:
  • Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit: $18,000 in 2015 and 2016, or $24,000 in 2015 and 2016 if age 50 or over; plus


  • Employer nonelective contributions up to 25% of compensation as defined by the plan, or
    for self-employed individuals, see discussion below

If you make $5,000 you can contribute $5,000. If you make $20,000 you can contribute $20,000 ($18,000 elective deferral + $2,000 non-elective deferral to hit 100% compensation). The math only gets interesting once you get above $24,000.

When I read that I wasn't sure if I could do the 100% plus the 25%.(i.e. 6250 on 5000 income)  Thanks for clearing it up for me. 
Title: Re: What's my max solo 401k contribution?
Post by: bacchi on April 24, 2016, 06:06:08 PM
Straight from the IRS's website (https://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans):

Quote
Contribution limits in a one-participant 401(k) plan

The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:
  • Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit: $18,000 in 2015 and 2016, or $24,000 in 2015 and 2016 if age 50 or over; plus
  • Employer nonelective contributions up to 25% of compensation as defined by the plan, or
    for self-employed individuals, see discussion below

If you make $5,000 you can contribute $5,000. If you make $20,000 you can contribute $20,000 ($18,000 elective deferral + $2,000 non-elective deferral to hit 100% compensation). The math only gets interesting once you get above $24,000.

The max is $4646, or $5000 - 1/2 of the SE tax. It doesn't matter if the SE tax is covered through regular W2 tax deductions; what matters is that Schedule C will show $4646 as the actual SE income.