https://www.solo401k.com - An Overview

Individuals are rushing to complete their 2013 tax year return as well as asking yourself how they can conserve tax obligation for the 2014 tax obligation year. The Solo 401( k) is a technique that couple of utilize. It is developed for local business owners who have just family workers. The limit is 2 individuals, which generally is business owner and the partner. The Solo 401( k) is not a brand-new type of 401( k) plan as well as has the very same rules as well as needs as any other 401( k) plan. More details can be located on the Internal Revenue Service website (1) as well as look for "Retirement-Plans-One_Participant-401k-Plans".

The organisation proprietor uses 2 hats in a 401( k) strategy: employee and employer. Contributions can be made to the plan in both capacities.

The 2nd component is the employer payment of as much as either 25 percent of the payment specified by the plan, usually earnings, or a various computation for the independent person. One specifies one's payment as "made earnings", which is net earnings from self-employment after deducting half of one's self-employment tax (calculated on Schedule SE). Then 20 percent of this number is what the employer payment is. The overall of both the worker income deferment along with the company payment can not surpass $51,000 for 2013 and $52,000 for 2014. If the individual is age 50 or over, there can be an extra $5,500 "catch-up" payment, making the overall maximum contribution to the Solo 401( k) plan $56,500 for 2013 and also $57,500 for 2014.

Example of a Schedule C, unincorporated local business, where the proprietor is at least age 50 and the internet revenue in 2014 is $200,000:

One determines the Section 1402(a)( 12) Reduction, which minimizes the figure to $184,700. Next one makes use of Arrange SE to determine FICA and Medicare Tax obligation, which amounts to $19,864.30. Half of this is $9,932,15, and is subtracted from $200,000. The outcome is $190,067.85 of Self-Employment Earnings. The maximum Staff member Income Deferral contribution is $17,500 plus $5,500 or $23,000. The maximum company revenue sharing contribution is $38,013.57 if one takes 20 percent of $190,067.85. The total amount of both contributions is $61,013.57. Nonetheless, one can not surpass the total restriction of $57,500. Keep in mind: a step-by-step worksheet for this estimation can be discovered in IRS Magazine 560. In contrast, the contribution restriction for an EASY Individual Retirement Account strategy would be $20,035.96 or $38,013.57 for a SEP Individual Retirement Account plan. One can contribute significantly more to a Solo 401(k) as opposed to these other 2 company IRA strategies, and absolutely a lot more than the $6,500 restriction for a standard individual IRA strategy.

Due dates: One have to establish your Solo 401(k) strategy by December 31, 2014, if you want to make a payment for tax year 2014 as well as lower taxable income. The payments should be moneyed by your tax-filing deadline. If one declare the 6-month expansion before the April 15, 2015 due date to submit one's 2014 tax return, one would certainly have until October, 15, 2015, to make the money payment.


The Solo 401( k) is not a new type of 401( k) strategy and has the exact same regulations and needs as any other 401( k) strategy. The organisation owner wears 2 hats in a 401( k) strategy: employee and employer. If the individual is age 50 or over, there can be an extra $5,500 "catch-up" contribution, making the total optimum contribution to the Solo 401( k) plan $56,500 for 2013 and $57,500 for 2014.

One can contribute significantly even more to a Solo 401(k) rather of these other two employer Individual Retirement learn more Account strategies, and also certainly much more than the $6,500 restriction for a traditional individual IRA plan.

Due dates: One need to establish your Solo 401(k) strategy by December 31, 2014, if you desire to make a contribution for tax year 2014 and also lower taxable earnings.