401k and solo-401k 2019 limits

5 Replies

Hello all. For all the following, please note I am under 50 years old!

If I am understanding correctly, the current maximum contribution for the 2019 tax year for your (single member LLC) Solo 401K is $19,000 as Employee and $37,000 as Employer total contribution on this account would be $56,000.

For someone who has a W-2 job offering a 401k plan with a company match:

  1. 1. How am I to calculate the limits on the solo 401k contributions? Assume I will first get a full match on company 401k.
  2. 2. For common terminology, is the $37,000 limit on Employer contribution also considered "profit sharing"?
  3. 3. I read a couple articles online, including a good answer from @Dmitriy Fomichenko , but still, I'm not clear on limits.
  4. 4. Is there an advantage towards putting into the solo-401k vs putting into an IRA? Both are self-directed. I'm aware of the IRA limits and they seem real simple to understand!

Thanks,

Michael

@Michael Slockers

With any 401(k), the plan maximum is $56K for someone under age 50.

It is not as simple as $19K as employee and $37K from the employer.   As the employee, you can contribute up to the $19K limit and do so with the first $19K of after payroll tax income you derive from your business.  The business can do a profit share up to the plan maximum of $56K, with the formula being up to 20% of net business income in a pass through or 25% of W-2 compensation in a corporate tax environment.   So if you make approximately $180K, you could max out the plan with profit sharing and not make an employee contribution.  If you make about $60K, you could put a touch over $30K in the plan by maxing out the employee contribution and the profit sharing available based on that income threshold.

In an larger employer plan, there is generally not the option for profit sharing and if there is, it usually does not reach the max.  You will be limited to your $19K as an employee and whatever the employer is willing to contribute either as a match against your contributions or as a profit-share.

If you participate in both an employers 401k and your own Solo 401(k), you have only one $19K employee contribution amount that you can split across plans.  You do not get to double up.  Any employer contribution in the form of a match or profit-share will be independent and not impacted by what the other plan may offer.

For those who qualify for the Solo 401(k) by being self-employed and having no full time employees, it is generally a nicer retirement plan format. As investment vehicles the 401(k) and IRA are largely similar. As a retirement plan, the 401(k) has many advantages.

Originally posted by @Michael Slockers :

Hello all. For all the following, please note I am under 50 years old!

If I am understanding correctly, the current maximum contribution for the 2019 tax year for your (single member LLC) Solo 401K is $19,000 as Employee and $37,000 as Employer total contribution on this account would be $56,000.

For someone who has a W-2 job offering a 401k plan with a company match:

  1. 1. How am I to calculate the limits on the solo 401k contributions? Assume I will first get a full match on company 401k.
  2. 2. For common terminology, is the $37,000 limit on Employer contribution also considered "profit sharing"?
  3. 3. I read a couple articles online, including a good answer from @Dmitriy Fomichenko , but still, I'm not clear on limits.
  4. 4. Is there an advantage towards putting into the solo-401k vs putting into an IRA? Both are self-directed. I'm aware of the IRA limits and they seem real simple to understand!

Thanks,

Michael

Keep in mind that your ability to contribute to the Solo 401k is a function of your self-employment income (i.e. you can't contribute more to the Solo 401k than you earn from your self-employment activity).

Originally posted by @Michael Slockers :

@George Blower I think I understand this. But isn't it more conservative than that? I believe @Brian Eastman mentioned I can only contribute up to 20% of self-employment income (pass-through). 

Yes of course

Based on experience with individuals who have a w2 day job and side self employment activity, a common point of confusion is that one could contribute w2 wages from day job to Solo 401k (which is not allowed)