All self-employed plans are considered for annual maximum contributions. The excess contribution is calculated from the amounts you have entered for your SEP and solo 401(k) combined compared to these limits:
Per the IRS:
Contributions an employer can make to an employee's SEP-IRA cannot exceed the lesser of:
- 25% of the employee's compensation, or
- $66,000 for 2023 ($61,000 for 2022, $58,000 for 2021 and $57,000 for 2020)
And:
The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:
- Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
- $22,500 in 2023 ($20,500 in 2022; $19,500 in 2020 and 2021), or $30,000 in 2023 ($27,000 in 2022; $26,000 in 2020 and 2021) if age 50 or over; plus
- Employer nonelective contributions up to:
- 25% of compensation as defined by the plan
- Total contributions to a participant’s account, not counting catch-up contributions for those age 50 and over, cannot exceed $66,000 for 2023 ($61,000 for 2022; $58,000 for 2021; $57,000 for 2020).
A business owner who is also employed by a second company and participating in its 401(k) plan (or SEP) should bear in mind that his limits on elective deferrals are by person, not by plan. He must consider the limit for all elective deferrals he makes during a year.
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