Solo 401k

[DP]

Can an employee who has a Solo 401k with compensation of $112,000 receive a total contribution of $40,000 for 2003?

$112,000 x 25% = $28,000

Maximum 401k = $12,000

Thanks.

[Guest Texgordon]

Yes...if the following formula is utilized:

Salary Reduction Contributions: $12K

Profit-Sharing Contribution: $28K

If the owner is over 50, another $2K can be deposited for "catch-up."

Make sure the plan document, etc., is in place and structured appropriately.

[Mike Preston]

It was $116,000 in 2002 to get $40,000, it is $112,000 in 2003 to get $40,000, it will be $112,000 in 2004 to get $41,000.

[DP]

Thanks for verifying this. I was thinking too hard about the 25% corporate limit versus the 100% individual limit and getting myself confused.

[K-t-F]

That works if the sponsor is a corporation... SE people will need to have compensation in the neighborhood of $147k to reach the $40k limit....

[Guest Texgordon]

The Solo 401(k) rules allow for salary reduction contributions up to the $12K limit and profit-sharing contributions with a cap of 25% of compensation or $40K total. The only "fly-in-the-ointment" is that for businesses that are unincorporated, it is based on Modified Net Profit which is net profit minus 1/2 of the self-employment tax.

[Appleby]

Right--- If the individual is a Sole Proprietor or Partnership (Partner) with a Net profit of $112,000, the maximum contribution for 2003 is $33,021 + $2,000 is age 50 or older for catch up