Maximum Contributions for Self-Employed Individual

[emmetttrudy]

When a self employed individual has a DB and 401k PSP, the deductible amount of the contributions going into the 401kPSP and DB plans is limited to Schedule C net income less 1/2 SE Tax, correct? So while the profit sharing plan contribution cannot exceed 6% in general, it is also limited by the Schedule C income, because a net loss cannot be created by the deduction of a plan contributions?

[SoCalActuary]

When a self employed individual has a DB and 401k PSP, the deductible amount of the contributions going into the 401kPSP and DB plans is limited to Schedule C net income less 1/2 SE Tax, correct? So while the profit sharing plan contribution cannot exceed 6% in general, it is also limited by the Schedule C income, because a net loss cannot be created by the deduction of a plan contributions?

And don't forget a few other issues: Health insurance premiums are adjusted before the net SE calc in 2010. If the contribution is at or above the net earned income, there is nothing left to compute the 6% rate. In addition, 401(k) deferral can mess things up. See the IRS worksheet in Pub 560 for more on this.

[ScottR]

Also, the health insurance deduction for owner may not exceed: Net Sch C income, minus deduction for 1/2 SE taxes, minus deduction for retirement plan contributions.

Thus, we need to leave "room" for the HI deduction, when quoting max retirement plan contributions. Effectively, this means that retirement plan contribs should not exceed net Schedule C - 1/2 SE tax - HI deduction.

... Scott