Solo 401k Contribution Calculations

Calculations for a S or C corporation or an LLC taxed as a corporation

Salary Deferral Contribution

In 2012, 100% of W-2 earnings up to the maximum of $17,000 or $22,500 if age 50 or older can be contributed to a Solo 401k. (2011 limits are $16,500 and $22,000 if age 50 or older).

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.
  In this example, the consultant could contribute $22,500 of salary deferrals + $12,500 profit sharing contribution (25% X $50,000) = $35,000 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.
  In this example, the consultant could contribute $22,500 of salary deferrals + $25,000 profit sharing contribution (25% X $100,000) = $47,500 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.