The Basics Of Solo 401K Contribution Limits
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Self-employed folks are not exempted from availing financial benefits since they can also have this option. 401K plans are usually given to employees who work in companies, while the self-employed can go for the solo 401K contributions. Thanks to the EGTRRA of 2001 (Economic Growth and Tax Relief Reconciliation Act of 2001), a new retirement plans was established to upgrade the existing terms of the 401K plans. As a result of the upgrade, the 401K solo contribution limits have increased.
Solo 401K usually consists of 2 types of contributions. The first is the general contribution that employees also pay before the year ends which amounts to $16,500. You can pay this amount in full for the first year from your self-employed income. For folks who are 50 years old and above, you may pay the said amount and an additional catch-up contribution of $5,500. These amounts are generally considered as the solo 401K contribution limits for self-employed individuals.
A contribution of up to 20%-25% of your income is the second type of 401K contribution that you can pay after your first year. Generally, this process is similar to a basic small business retirement plan. Generally, you can contribute more every year if you consider these additional percentages from your income. Once you apply this, your 401K contribution limit will change based on the amount of your additional contribution.
In 2010, the total solo 401k contribution limits were set $49,000 for those who are under 50 years old, and $54,500 for 50 years old and above. If you are to look at the 401K contribution limits 2010, you will notice that there are no changes on the standard amounts for both employees and self-employed.
It is advisable for every 401K account holder to get updates from the IRS website or from financial publications, both online and offline. With various factors that can affect your 401K contribution limit, it is best to get hold of the information as early as possible, so that you can prepare for the current year’s contribution. However, in order to make the most of your 401K savings, you need to take control of your funds and investments accordingly, just like the way you control your 401K account.
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