Understand Solo 401k Contribution Limit
Every year in October, the IRS announced the contribution limits to retirement plans for the coming year. These limits may or may not increase from the current limit, based on studies of the cost of living that year. Sense Financial recommends plan owners to stay posted on the annual contribution limit to plan ahead for their contributions.
According to the IRS regulations, a Solo 401k plan participant is seen as both the employer and the employee of the business, being the sole participant in the plan. Unlike traditional 401k(s), Solo 401k plan allows business owners to make both elective deferral and profit sharing contributions.
For 2015, the increase in the cost of living is not substantial enough to call for adjustments. Hence, for 2016, all contribution limits to retirement plans will remain the same.
The salary deferral contribution will still be capped at $18,000 per year for Solo 401k participants. For those over 50 years old, a $6,000 catch-up contribution is allowed, raising the total salary deferral limit to $24,000.
With the profit sharing contribution, plan participants can contribute up to $53,000 to their Solo 401k plan. Including the catch-up allowance, the contribution can be as high as $59,000 per year as of 2016.
Even without any adjustments, the Solo 401k plan allows one of the most generous contribution limits among qualified retirement plan. This allows small business owners and self-employed individuals to catch up with their savings and accelerate towards their retirement goals.
Every year the contribution limit will be announced by the IRS. As usual, it is the plan participant’s responsibilities to stay up to date and plan ahead. While the maximum limit remains the same, each business owner’s contribution limit also depends on their particular business and income. Therefore, Sense Financial recommends using a Solo 401k contribution calculator to determine the limit for each specific participant.
Sense Financial is California's leading provider of retirement accounts with "Checkbook Control": the Solo 401k and the Checkbook IRA. Over the years, they have assisted hundreds of clients to obtain checkbook control over their retirement accounts while providing them with the ability to invest in virtually any investment class, including real estate, private lending, mortgage notes and much more without the need for custodian approval.
To learn more about Solo 401k, please visit sensefinancial.com.