Taking Advantage of the Recent Increase in Solo 401k Contribution Limits
Recently there has been a growing interest in the Solo 401k retirement plan, due to its increased contribution limits. With all the talk of increasing tax rates, many want to shelter as much of their income as they can. The increased Solo 401k contribution limits now offer greater potential to do so.
Solo 401k Contribution Limits
This year the IRS increased the maximum Solo 401k contribution limit to $56,500 for owners over the age of 50. The Solo 401k contribution limit for those under the age of 50 is $51,000 per year.
This increases the annual contribution limit by $1,000 from last year, providing a greater incentive to those who wish to shelter more of their income.
The Solo 401k Plan was designed for the self employed and the small business owner. Those who qualify can make contributions as both employee and employer. The sum of these two parts- the employee salary deferral contribution and the employer profit sharing contribution, make up the maximum Solo 401k contribution limit.
For 2013, the contribution limit for employee salary deferral is $17,500 for those who are under the age of 50. For those age 50 and over, a “catch-up” provision allows an additional $5,500, making the maximum contribution limit $23,000.
Depending on the structure of the business, an additional 20% or 25% of the compensation makes up the employer profit sharing contribution. A sole proprietorship can defer 20% of the compensation; a corporation can defer 25% of the compensation.
The high contribution limit can be used to even greater advantage when the spouse also works for the business. As a full-time employee of the business, the spouse can also make contributions, almost doubling the already high Solo 401k contribution limit.
For those who qualify, the Solo 401k retirement plan offers many advantages, high contribution limits being one of them. These increased contribution limits provide a greater opportunity to shelter more income, tax-free.
Comments