The 2023 contribution limits for a Solo 401(k) retirement plan (also known as the self-employed 401(k) contribution limit) has increased from 2022 limits. Depending on your earnings, you can contribute up to $66,000 if you’re under age 50. You can contribute up to $73,500 if you’re age 50 and older.
Solo 401(k) Contribution Limits—Two Parts
Your Solo 401(k) Plan consists of two components. You can contribute money into your retirement account as an employer and employee. Therefore, you have two Solo 401(k) contributions. The IRS sets the contributions limits every year.
Elective Deferral:
As an employee of a self-employed business or small business with no full-time employees (other than an owner or a spouse), you have the option to make the Employee Contribution. This is also known as the Elective Deferral. For 2023, the Solo 401(k) maximum contribution limit for the elective deferral is $22,500 if you’re under age 50. This is a $2,000 increase from the 2022 limit. Whereas the elective deferral contribution if you’re 50 and older is $30,000, which is an increase of $3,000 from 2022. Employee deferral contributions can be made in pretax or Roth.
Profit Sharing:
The Solo 401(k) Profit Sharing Contribution is also known as the Employer Contribution. For 2022, you can make an additional contribution of $43,500 whether you are under or over 50 years old. Unlike the employee deferral contribution, which is a dollar-for-dollar contribution, the Solo 401(k) plan employer contribution is based on a percentage of the income.
For example:
If your business is a corporation or multi-member LLC, your maximum profit-sharing contribution is up to or equal to 25% of your W-2 income or guaranteed payment amount in the case of a partnership.
If your business is a sole proprietor or single member LLC, your maximum profit-sharing contribution is up to or equal to 20% of your schedule C income.
As a result, the maximum contribution for a Solo 401(k) plan if you’re younger than 50 is $61,000. If you’re 50 and older, you can make a maximum contribution of $67,500.
Because you have two contribution types, you can reach the maximum contribution amount in a Solo 401(k) retirement plan quicker than a SEP IRA. Total Limit for Couples
Total Solo 401(k) Contribution Limit for Couples
Your spouse can participate in the Solo 401(k) Plan if he/she earns compensation from the business. Remember, only a spouse or business partner can work full time to be eligible for a Solo K. If you have any other employees, you cannot utilize the Solo 401(k) plan. He or she can make separate and equal contributions. This increases the annual contribution to $132,000 (under 50) or $147,000 (50+) that a couple can make for 2023.
Did You Know?
IRA Financial Group’s Solo 401(k) plan is the most popular because it’s designed especially for small, owner-only businesses, to maximize contributions as both employer and employee! Contact us today to learn about how IRA Financial can work with you!
