Contributions and Contribution Limits

What is the maximum contribution to my Self-Directed Solo 401(k) in 2019 and 2020?

Up to $56,000 are tax advantaged retirement dollars are allowed if you choose to maximize your personal and company contributions. Learn how Rocket Dollar can help you capitalize on these contributions.

There are three types of contributions to your Self-Directed Solo 401(k):

  1. Traditional (employee salary deferral, pre-tax)
  2. Roth (after-tax)
  3. Employer contribution or profit-sharing. You can choose one calculation period for a taxable year. These are pretax deferrals only.

The maximum employee salary deferral is $19,500 for 2020. You can contribute 100% of your income up to the $18,500 limit. Catch-up contributions of $6,000 are possible for persons aged 50 and over. The IRS calls these "elective deferrals".

You have two contribution limits and "buckets" to fill to get to the overall $56,000 2019 limit.

Since profit sharing and employer contributions can only be pre-tax, it might make sense to use your employer contribution as a traditional contribution and your personal contributions to meet your goals on Roth contributions.

2018: $18,500 for a Traditional deferral or Roth personal contribution, $36,500 for a profit-sharing/employer contribution. $55,000 limit

2019: $19,000 for a Traditional deferral or Roth personal contribution, $37,000 for a profit-sharing/employer contribution. $56,000 limit.

2020: $19,500 for a Traditional deferral or Roth personal contribution, $37,000 for a profit-sharing/employer contribution. $57,000 limit.

If you are over 50, you get $6,000 extra in catch up contributions per year.

2018: $24,500 for a Traditional deferral or Roth personal contribution, $36,500 for a profit sharing/employer contribution. The $6,000 in catch up contributions do not count against the $55,000 limit.

2019: $25,000 for a Traditional deferral or Roth personal contribution, $37,000 for a profit sharing/employer contribution.The $6,000 in catch up contributions do not count against the $56,000 limit.

2020: $26,000 for a Traditional deferral or Roth personal contribution, $37,000 for a profit-sharing/employer contribution.The $6,500 in catch up contributions do not count against the $57,000 limit.

Profit-sharing and matching details.

If your business is a C-Corp or LLC taxed as a corporation you can contribute 25% of your net profit from the business via the employer non-elective contribution (sometimes called the profit-sharing contribution) to your Self-Directed Solo 401(k). You can make employer contributions up to $36,500. You'd need compensation (earned income) of $146,000 to make the full contribution of $55,000. Note that for an S-Corp, including an LLC taxed as an S-Corp, both your non-elective contributions and your profit sharing contribution need to come from your salary so if your goal is to maximize your Self-Directed Solo 401(k) plan contributions, you'll need to pay yourself a salary that is high enough to cover both your non-elective contribution and your profit sharing contribution.

If your business is an LLC taxed as a sole proprietorship or a partnership, you can contribute 20% of net profit from the business as the employer contribution or profit sharing contribution to your Self-Directed Solo 401(k). You can make employer contributions of up to $36,500. You'd need compensation (earned income) of $182,500 to make the full contribution of $55,000.

Another option available to a Self-Directed Solo 401(k) account holder is to add their spouse to the plan if the spouse is earning an income from the same business as the account holder. Adding the spouse to the plan allows for a doubling of the contributions. The spouse can make the same contributions as the account owner as long as the spouse has earned enough income. If your business is an S-Corp, C-Corp, or LLC taxed as a corporation, you can now contribute up to $110,000. To contribute the full amount, the married couple would need to generate compensation (earned income) of $292,000 to make the full contribution of $110,000. If your business is an LLC taxed as a sole proprietorship or a partnership the married couple would need to generate compensation (earned income) of $365,000 to make the full contribution of $110,000.

If you're not contributing $55,000 (or $110,000 as a married couple) you may still be able to make after-tax contributions. See the article here on the Mega Roth.

This is not tax advice and is focused on education only. Before making a decision, consult a tax advisor.

 

Read more about our Self-Directed Solo 401(k)