Solo 401k Calculations for a sole proprietorship, partnership or an LLC

Calculations for a sole proprietorship, partnership or an LLC taxed as a sole proprietorship

The annual Solo 401k contribution consists of a salary deferral contribution and a profit sharing contribution. The total allowable contribution adds these 2 parts together to get to the maximum Solo 401k contribution limit. The 2021 Solo 401k contribution limit is $58,000 and $64,500 for those age 50 or older.

Salary Deferral Contribution

Although the term salary deferral is used, a sole proprietorship, partnership or an LLC taxed as a sole proprietorship do not provide a W-2 salary to the business owner. For businesses of this type, the salary deferral contribution is based on net adjusted business profit. Net adjusted business profit is calculated by taking gross self employment income and then subtracting business expenses and then 1/2 of the self employment tax. In 2021, 100% of net adjusted business profits income up to the maximum of $19,500 or $26,000 if age 50 or older can be contributed in salary deferrals to the Solo 401k.

Profit Sharing Contribution

A profit sharing contribution can be made up to 20% of net adjusted business profits. Net adjusted business profit is calculated by taking gross self employment income and then subtracting business expenses and then 50% of the self employment tax.

  • EXAMPLE 1
    A sole proprietor is age 35 and works as an independent contractor with $50,000 of net income in 2021. In this example, the sole proprietor could contribute $19,500 of salary deferrals + $9,294 profit sharing contribution = $28,794 Total Solo 401k contribution.

  • EXAMPLE 2
    A sole proprietor is age 35 and works as an independent contractor with $100,000 of net income in 2021. In this example, the sole proprietor could contribute $19,500 of salary deferrals + $18,587 profit sharing contribution = $38,087 Total Solo 401k contribution.

  • EXAMPLE 3
    A sole proprietor is age 50 and works as an independent contractor with $50,000 of net income in 2021. In this example, the sole proprietor could contribute $26,000 of salary deferrals + $9,294 profit sharing contribution = $35,294 Total Solo 401k contribution.

  • EXAMPLE 4
    A sole proprietor is age 50 and works as an independent contractor with $100,000 of net income in 2021. In this example, the sole proprietor could contribute $26,000 of salary deferrals + $18,587 profit sharing contribution = $44,587 Total Solo 401k contribution.

Salary deferral and profit sharing contributions are generally 100% tax deductible from personal income.

Is there a deadline to make salary deferrals into the Solo 401k?

For a sole proprietorship, partnership or an LLC taxed as a sole proprietorship the deadline for depositing salary deferrals into the Solo 401k is generally the personal tax filing deadline April 15 (or October 15 if an extension was filed).

When must profit sharing contributions be made into the Solo 401k?

For a sole proprietorship, partnership or an LLC taxed as a sole proprietorship the deadline to fund the profit sharing contribution is the personal tax filing date of April 15 or October 15 if an extension was filed.

Solo 401k Calculator

To determine the annual retirement contribution you could make based on your income use the Solo 401k Calculator.

Learn more about the benefits of the Solo 401k

  • Solo 401k – Information, Rules and Frequently Asked Questions about the Solo 401k.

  • Solo 401k Eligibility – Learn about the eligibility rules and find out who is eligible and who is ineligible to establish a Solo 401k plan.

  • Solo 401k Loan – A 401k loan up 50% of the total value of the 401k up to a maximum loan of $50,000 is permitted with a Solo 401k plan.

  • Solo Roth 401k – There is an option to make Roth 401k contributions with the salary deferral portion of the Solo 401k. Contributions into a Roth 401k are not tax deductible, but withdrawals are tax free after age 59 ½.

  • Solo 401k Rollover – You can rollover your 401k, 403b, 457, TSP and Defined Benefit Plan from a previous employer. You can also rollover a Traditional IRA, SEP IRA, Rollover IRA, SIMPLE IRA and Keogh plan.

  • Solo 401k Providers – Learn about the 3 main types of Solo 401k providers and the investment options available with each Solo 401k provider.

  • Self Employed Retirement Plan Comparison – Compare the Solo 401k, SEP IRA, Defined Benefit Plan and Simple IRA.