Solo 401(k)s are retirement plans designed for self-employed individuals and business owners with no full-time employees other than their spouse. These plans offer significant tax-saving advantages and allow you to contribute both as an employee and an employer. The employee contribution limit for 2023 is $22,500, while the employer contribution limit is 25% of your net business income, up to a maximum of $66,000. Keep in mind that the total combined contribution, including both employee and employer portions, cannot exceed the lesser of these two limits.
Solo 401(k) Contribution Limits: Employer Contributions and Safe Harbor Options
A solo 401(k) is a retirement savings plan designed for self-employed individuals and small business owners with no employees other than themselves or their spouses. One of the key features of a solo 401(k) is the ability to make both employee and employer contributions, allowing you to save more for retirement.
Employee Contribution Limits
As an employee, you can contribute up to 100% of your earned income with a limit of $22,500 for 2023, and $30,000 if you are 50 or older by the end of the year.
Employer Contribution Limits
As the employer, you can also make contributions on your behalf. The maximum employer contribution limit for 2023 is 25% of your net self-employment income, with a maximum limit of $66,000 ($73,500 if you are 50 or older by the end of the year).
- Profit Sharing: Allows you to contribute up to 25% of your net income.
- Matching Contributions: You match employee contributions up to a maximum of 25% of compensation or $66,000 ($73,500 if you are 50 or older by the end of the year).
Combined Contribution Limits
The total combined contribution limit, including both employee and employer contributions, is $66,000 for 2023 ($73,500 if you are 50 or older by the end of the year).
Safe Harbor Option
If you meet certain criteria, you can take advantage of the safe harbor option, which simplifies employer contributions. Under this option, you can make a fixed employer contribution of 3% of employee compensation for all eligible employees. The safe harbor limit for 2023 is $66,000 ($73,500 if you are 50 or older by the end of the year).
| Contribution Type | Limit for 2023 | Limit for 50 or Older |
|---|---|---|
| Employee Contribution | $22,500 | $30,000 |
| Employer Contribution (Profit Sharing) | 25% of net income | 25% of net income |
| Employer Contribution (Matching) | 25% of compensation or $66,000 | 25% of compensation or $73,500 |
| Combined Contribution Limit | $66,000 | $73,500 |
| Employer Safe Harbor Contribution | 3% of employee compensation | 3% of employee compensation |
Employee Contribution Limits
Contributions to a solo 401(k) are divided into two categories: employee elective deferrals and employer profit-sharing contributions. The maximum contribution limits for each of these categories vary based on the type of plan you have and your income.
Employee Elective Deferrals
- Traditional Solo 401(k): For 2023, the maximum employee elective deferral limit is $22,500.
- Roth Solo 401(k): For 2023, the maximum employee elective deferral limit is $22,500, which is subject to income restrictions.
Employer Profit-Sharing Contributions
- For 2023, the maximum employer profit-sharing contribution limit is 25% of your net self-employment income, up to $66,000. This amount is in addition to the employee elective deferral limit.
Contribution Limit Table
| Plan Type | Employee Elective Deferral Limit | Employer Profit-Sharing Contribution Limit |
|---|---|---|
| Traditional Solo 401(k) | $22,500 | 25% of net self-employment income, up to $66,000 |
| Roth Solo 401(k) | $22,500 | 25% of net self-employment income, up to $66,000 (subject to income restrictions) |
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Solo 401(k) Contribution Limits
Solo 401(k) plans offer self-employed individuals and small business owners a powerful tool for retirement savings. One of the key advantages of Solo 401(k)s is the high contribution limits, allowing you to save a significant amount of money for your future. The contribution limits for Solo 401(k)s are established by the Internal Revenue Service (IRS) and are adjusted each year for inflation.
Age-Related Contribution Limits
- Under age 50: For individuals under age 50, the contribution limit for 2023 is $22,500.
- Age 50 and over: Individuals age 50 and over can make catch-up contributions of up to an additional $7,500, bringing the total contribution limit to $30,000.
These contribution limits apply to both employee and employer contributions. As the account holder of a Solo 401(k), you can split contributions between these two categories as you wish.
Employer Contribution Limits
| Contribution Type | Contribution Limit |
|---|---|
| Employee deferrals | $22,500 in 2023 ($30,000 with catch-up contribution for those age 50 and over) |
| Employer matching contribution | 100% of employee deferrals, up to 25% of net business income |
| Profit-sharing contribution | Up to 100% of net business income (after employee deferrals and employer matching contributions) |
Well, there you have it, everything you wanted to know about Solo 401k contributions. If you want to know more about personal finance, retirement planning, or investing, check out our other articles. Thanks for reading, and we hope to see you again soon!