Solo 401(K)-What You Need To Know - Philadelphia CPA
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Solo 401(K)-What You Need To Know

Solo 401(K)-What You Need To Know

The one participant 401(k) plan is not a new type of 401(k). It’s a traditional plan covering a business owner with no employees, ot that person and his or her spouse. These plans have the same rules and requirements as any other 401(k) plan.

Contribution Limits in a one-participant 401(k) plan

The business owner wears two hats in this plan: employee and employer. Contributions can be made to the plan in both capacities. the owner can contribute

  • Elective Deferrals up to 100% of compensation (that is earned income in the case of self-employed individual) up to the annual contribution limit of $18000 in 2015 and 2016, or $24,000 in 2015 and 2016 if age 50 or older, plus
  • Employer non-elective contributions up to–25% of compensation.

Total contributions to a participant’s account, not counting cat-up contributions for those age 50 and over, cannot exceed $53,000 in 2015 and 2016.

Example:

John, age 51, earned $50,000 in W-2 wages from his S Corporation in 2015. He deferred $18,000 in regular elective deferrals plus $6,000 in catch-up contributions to the 401(k) plan. His business contributed 25% of his compensation to the plan, $12,500. Total contributions to the plan were $36,500 in 2015–this is the maximum contribution in 2015. A business owner is also employed by a second company and participating in its 401(K) should bear in mind that his limits on elective deferrals are by person, not by the plan.

Contribution limits are somewhat different, and require a special computation for self-employed individuals.

For further information on this see IRS Publication 560.