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The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers. Here’s the question of the day.
Question: My client wants to contribute the maximum to his Solo 401(K) plan. How much is that?
Answer: This is from the IRS website:
One-Participant 401(k) Plans
Contribution limits in a one-participant 401(k) plan
The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:
- Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
- 2012: $17,000 or $22,500 if age 50 or over
- 2013: $17,500 or $23,000 if age 50 or over; and
- Employer nonelective contributions up to
- 25% of compensation as defined by the plan, or
- for self-employed individuals, see discussion below
Total contributions to a participant’s account, not counting catch-up contributions, cannot exceed $50,000 for 2012 and $51,000 for 2013.
The employer non-elective contributions are limited to 20% of net self-employment income for self-employed individuals.
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