Solo 401(k) Contribution Calculator
Understanding Your Solo 401(k) Contribution Potential
A Solo 401(k), also known as an Individual 401(k) or One-Participant 401(k), is a powerful retirement savings plan designed specifically for self-employed individuals and small business owners with no full-time employees other than themselves or their spouse. It offers significantly higher contribution limits than other self-employed retirement plans like SEP IRAs, allowing you to save more for retirement while potentially reducing your taxable income.
Who is Eligible for a Solo 401(k)?
To be eligible, you must be self-employed (e.g., a sole proprietor, independent contractor, freelancer, or owner of an LLC, partnership, or S-Corp) and have no full-time employees other than yourself or your spouse. If you have employees, a traditional 401(k) plan would be more appropriate.
How Solo 401(k) Contributions Work
The Solo 401(k) allows for two types of contributions, mimicking a traditional employer-sponsored 401(k):
- Employee Elective Deferral: As the employee of your own business, you can contribute up to 100% of your net self-employment income, capped at a specific annual limit. For 2024, this limit is $23,000. If you are age 50 or older, you can make an additional catch-up contribution of $7,500, bringing your employee deferral limit to $30,500.
- Employer Profit Sharing Contribution: As the employer, your business can make a profit-sharing contribution. This contribution is generally limited to 25% of your "net earnings from self-employment." For calculation purposes, the IRS effectively allows you to contribute 20% of your gross self-employment income (before deducting one-half of your self-employment taxes and the employer contribution itself).
There is also an overall maximum contribution limit for both employee and employer contributions combined. For 2024, this total limit is $69,000, or $76,500 if you are age 50 or older (including the catch-up contribution).
How This Calculator Works
This calculator helps you determine your maximum possible Solo 401(k) contribution based on your net self-employment income and age. It applies the 2024 IRS contribution limits and the standard calculation methods:
- It first calculates your maximum employee elective deferral, considering your income and age-based limits.
- Then, it calculates your maximum employer profit-sharing contribution, using the effective 20% rule of your net self-employment income.
- Finally, it sums these two contributions and ensures the total does not exceed the overall annual contribution limit for your age group.
Examples of Solo 401(k) Contributions
Let's look at a few scenarios using the 2024 limits:
- Scenario 1: High Income, Under 50
- Net Self-Employment Income: $150,000
- Age: 40
- Maximum Employee Contribution: $23,000 (capped by limit)
- Maximum Employer Contribution: $150,000 * 0.20 = $30,000
- Total Maximum Contribution: $23,000 + $30,000 = $53,000 (within the $69,000 overall limit)
- Scenario 2: High Income, Age 50 or Older
- Net Self-Employment Income: $150,000
- Age: 55
- Maximum Employee Contribution: $30,500 (includes $7,500 catch-up)
- Maximum Employer Contribution: $150,000 * 0.20 = $30,000
- Total Maximum Contribution: $30,500 + $30,000 = $60,500 (within the $76,500 overall limit)
- Scenario 3: Income Limited, Under 50
- Net Self-Employment Income: $20,000
- Age: 40
- Maximum Employee Contribution: $20,000 (capped by income)
- Maximum Employer Contribution: $20,000 * 0.20 = $4,000
- Total Maximum Contribution: $20,000 + $4,000 = $24,000 (within the $69,000 overall limit)
- Scenario 4: Very High Income, Age 50 or Older (Hitting Overall Limit)
- Net Self-Employment Income: $300,000
- Age: 55
- Maximum Employee Contribution: $30,500 (includes $7,500 catch-up)
- Potential Employer Contribution: $300,000 * 0.20 = $60,000
- Potential Total: $30,500 + $60,000 = $90,500
- Actual Total Maximum Contribution: $76,500 (capped by the overall limit for age 50+)
- Actual Employer Contribution: $76,500 – $30,500 = $46,000
Important Note: This calculator provides an estimate based on current IRS rules. Your "Net Self-Employment Income" is typically your gross income from your business less allowable business expenses, before deducting one-half of your self-employment taxes and any Solo 401(k) contributions. Always consult with a qualified financial advisor or tax professional for personalized advice regarding your specific situation.