Individual 401(k) Plan (Also known as Solo 401k) is the type of Qualified Retirement Plan that is designed for small business owners without full time workers and self-employed individuals. The yearly Solo 401k Contribution Limits consist of two components: the employee elective deferral and profit sharing contributions on the business side. In the year 2013 the maximum contribution limit is $51,000. Those who are 50 year of age and older are able to take advantage of “catch-up” provision, allowing them to contribute an additional $5,500 to the plan, for a combined maximum of $56,500. There are number of other powerful benefits that Solo 401k plan offer, but the high Solo 401k Contribution Limits is one of the top reason what makes this plan so attractive for those who qualify.
Employee Salary Deferrals
In the year 2013, Solo 401k Rules allow plan participants to contribute $17,500 in the form of Employee Elective Deferrals, which can be up to 100% of the compensation received. This amount includes $500 increase from the 2012 Solo 401k Contribution Limits.
Those, who are over 50 years of age allowed to contribute an additional $5,500 in “catch-up” contributions for a total of $23,000. The employee salary deferral contribution can be made in either pre-tax or after tax dollars (Roth).
Profit Sharing Contributions
Being self-employed, plan participant wearing two hats: of an employee and employer, which allows him to make even greater contributions to the plan. On the business side, contributions can be made to the plan in the form of Profit Sharing. That amount equals to 25% of the plan participant compensation. If the business is set up as single member LLC or sole-proprietor, the profit sharing component is 20% of the self-employment compensation.
The combined maximum, employee elective salary deferral plus employer profit sharing is equal to $51,000. Of course, those who are over 50 year of age are allowed additional $5,500 making total maximum $56,500.
To make the process of calculating Solo 401k Contributions easy, please use Solo 401k Contributions Calculator.
- Solo 401k Contribution Limits
- Solo 401k rules
- Individual 401k Contributions
- What is a Solo 401k