What are the contribution limits for a Solo 401(k) Plan?

A Solo 401K participant can contribute to the plan as an employee and as employer.

Employee Elective Deferrals

For 2016, up to $18,000 per year can be contributed by the participant through employee elective deferrals. An additional $6,000 can be contributed for persons over age 50. These contributions can be up to 100% of the participant’s self employment compensation.

Employer Profit Sharing Contributions

Through the role of employer, an additional contribution can be made to the plan in an amount up to 25% of the participant’s self employment compensation.

Total Limit

The sum of both contributions can be a maximum of $53,000 per year (for 2016) or $59,000 for persons over age 50.

If the business owner’s spouse elects to participate in the Solo 401(k) and earns compensation from the business, the spouse is allowed to make separate and equal contributions increasing the couples’ annual total contribution to $106,000 for 2016 or $118,000 if both spouses over age 50.

Example 1: Joe, who is 35, is the sole owner of ABC, Inc. Joe receives $100,000 of compensation from the corporation. For 2016, the maximum deductible contribution Joe can make to his Solo 401(k) account would be a whopping $43,000 [$18,000 + (25% of $100,000)]. That's a significant amount more than the amount Joe would be able to contribute to a traditional IRA or SEP IRA.

Example 2: Joe, who is 35 is a sole proprietor. Joe earns $100,000 from his sole proprietorship. Now say you earn $80,000 from your sole proprietorship. For 2016, the maximum deductible contribution Joe can make to his Solo 401(k) account would be a whopping $38,000 [$18,000 + (20% of $100,000)]. That's a significant amount more than the amount Joe would be able to contribute to a traditional IRA or SEP IRA.

Example 3: Joe, who is 55, is the sole owner of ABC, Inc. Joe receives $100,000 of compensation from the corporation. For 2016, the maximum deductible contribution Joe can make to his Solo 401(k) account would be a whopping $49,000 [$24,000 + (25% of $100,000)]. That's a significant amount more than the amount Joe would be able to contribute to a traditional IRA or SEP IRA.

Example 4: Joe and Kim are married. Joe, who is 35, is the sole owner of ABC, Inc. Joe and Kim each receive $100,000 of compensation from the corporation. For 2016, the maximum deductible contribution Joe can make to his Solo 401(k) account would be $43,000 [$18,000 + (25% of $100,000)] and the maximum deductible contribution Kim can make to his Solo 401(k) account would be $43,000, for a total of a whopping $86,000.

Please contact one of our 401(k) Experts at 800-472-0646 for more information.


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