Solo 401k Contribution Calculations
(Calculations for a S or C corporation or a LLC taxed as a corporation)

Salary Deferral Contribution
In 2009, 100% of W-2 earnings up to the maximum of $16,500 or $22,000 if age 50 or older can be contributed to a Solo 401k.

Profit Sharing Contribution
A profit sharing contribution up to 25% of W-2 earnings can be contributed into a Solo 401k.

• EXAMPLE 1
  A self employed consultant is age 50 with a subchapter S business with $50,000 of W-2 earnings.
  
  $22,000 of salary deferrals (Taxable W-2 earnings would be reduced from $50,000 to $28,000) + $12,500 profit sharing contribution (25% X $50,000) = $34,500 Total Solo 401k contribution
   
• EXAMPLE 2
  A self employed consultant is age 50 with a subchapter S business with $100,000 of W-2 earnings.
  
  $22,000 of salary deferrals (Taxable W-2 earnings would be reduced from $100,000 to $78,000) + $25,000 profit sharing contribution (25% X $100,000) = $47,000 Total Solo 401k contribution

In the above examples for these type of businesses, salary deferral contributions reduce taxable W-2 wages and profit sharing contributions are generally tax deductible as a business expense.

Summary:

Generous Solo 401k contribution limits and the favorable way the annual contribution is calculated compared to other self employed retirement plans are attractive features of the Solo 401k.

Learn more about the benefits of a Solo 401k.

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Disclosures:

*  The information on this page is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice. To determine your individual tax situation and specific needs, please consult a professional tax advisor.

* Information contained in these sections merely highlight some benefits. There are risks involved with all investments that could include tax penalties and risk/loss of principal.