topic Solo 401 (K) Limit in Retirement tax questions

Solo 401 (K) Limit

drs289 — Sun, 13 Apr 2025 19:46:27 GMT

For self employed people: Gross income-expense= net profit

Earned income=netprofit- self employment tax/2

The employee contribution limit for one-participant 401(k) plans in 2024 is $23,000. The limit for employer contributions is up to 25% of compensation. Because I am self-employed, I can contribute both as the employer and the employee.

My question is: What is the maximum amount I can contribute to a Solo 401(k)? Is the limit for the employee portion less than or equal to my earned income assuming it's less than or equal to 23,000? What is the limit for employer portion is it 25% of net profit or 25% of gross income?

Thanks in advance for helping me with this.

Re: Solo 401 (K) Limit

dmertz — Sun, 13 Apr 2025 21:31:33 GMT

"The employee contribution limit for one-participant 401(k) plans in 2024 is $23,000. The limit for employer contributions is up to 25% of compensation. Because I am self-employed, I can contribute both as the employer and the employee."

It's 20% of net earnings, not 25%. For the self-employed, a special calculation reduces the 25% base rate to 20% because the employer contribution effectively reduces net earnings. Marking the Maximize box in TurboTax for an individual 401(k) contribution will cause TurboTax to calculate the maximum permissible contribution (assuming that you have not also made elective deferrals to a different employer's plan in the same year, in which case you would have to use the Maximize function for a SEP contribution to calculate only the employer contribution).

Re: Solo 401 (K) Limit

drs289 — Sun, 13 Apr 2025 22:06:54 GMT

Thanks so much for your help, I appreciate it.