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Level 1

I understand the employer contribution to a self-employed 401k plan is limited to 20% of net profit. Is this 20% total, or 20% per plan participant (e.g. me + spouse)?

 
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Level 20

I understand the employer contribution to a self-employed 401k plan is limited to 20% of net profit. Is this 20% total, or 20% per plan participant (e.g. me + spouse)?

A sole proprietor (self employed person)  filing a Sch C  means only one person owns the business ... there cannot be a second person.  So is the spouse an employee ?   If you have a solo 401K for the sole proprietorship then there can be only one person listed.  

 

 

Level 20

I understand the employer contribution to a self-employed 401k plan is limited to 20% of net profit. Is this 20% total, or 20% per plan participant (e.g. me + spouse)?

Both, because the employer contribution must be the same percentage of compensation for each spouse (for 2018, up to a limit of $275,000 of compensation per individual taken into account and limited to a maximum addition for each spouse of $55,000 plus $6,000 age-50 catch-up per individual).

 

Also, it's 20% of net earnings.  Net earnings are net profit minus the deductible portion of self-employment taxes.

 

(Critter, a solo 401(k) can cover both spouses who both participate in the business.)