Solo 401k Contribution Limit Question

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RenoJay
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Joined: Tue Nov 17, 2009 11:20 am
Location: Nevada

Solo 401k Contribution Limit Question

Post by RenoJay »

I'm trying to figure out which income counts toward the solo 401k contribution limits and would appreciate any guidance from Bogleheads with knowledge.

Suppose someone owned an LLC that qualified for a solo 401k. Suppose the owner of this LLC had all of the following income in 2014:

$100k of profit from self-employment activities that flowed through the LLC;
$100k of taxable interest that DID NOT flow through the LLC but went to the individual owner;
$100k of taxable dividends that DID NOT flow through the LLC but went to the individual owner.

What total income would you use to determine the maximum contribution allowable to the solo 401k ($100k, $200k, $300k or some other amount) and how much would that contribution be assuming the owner is younger than 50?

Thanks!
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Duckie
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Re: Solo 401k Contribution Limit Question

Post by Duckie »

RenoJay wrote:What total income would you use to determine the maximum contribution allowable to the solo 401k ($100k, $200k, $300k or some other amount) and how much would that contribution be assuming the owner is younger than 50?
The solo 401k is for business income, so unless the interest and dividends are business related they would not be included.

As the employEE you are allowed $17.5K deferral for 2014. As the employER you are allowed roughly 20% of the net profits of $100K so about $20K totaling about $37.5K. That's not exact but ballpark.
Topic Author
RenoJay
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Joined: Tue Nov 17, 2009 11:20 am
Location: Nevada

Re: Solo 401k Contribution Limit Question

Post by RenoJay »

Duckie wrote:
RenoJay wrote:What total income would you use to determine the maximum contribution allowable to the solo 401k ($100k, $200k, $300k or some other amount) and how much would that contribution be assuming the owner is younger than 50?
The solo 401k is for business income, so unless the interest and dividends are business related they would not be included.

As the employEE you are allowed $17.5K deferral for 2014. As the employER you are allowed roughly 20% of the net profits of $100K so about $20K totaling about $37.5K. That's not exact but ballpark.
Thank you very much.

Regarding the interest, it COULD be funneled through the business. Would that expose it to any additional taxes such as social security/medicare?

Also, if the interest runs through one LLC and there's business income and a solo 401k set up with another LLC, (both owned by the same person) could the profits be pooled to calculate the total net profits?
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Duckie
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Re: Solo 401k Contribution Limit Question

Post by Duckie »

RenoJay wrote:Regarding the interest, it COULD be funneled through the business. Would that expose it to any additional taxes such as social security/medicare?
If the interest is from an asset in a personal account and you move it to a business account solely to contribute more to your solo 401k that becomes a tricky issue. I'm not sure what the IRS would think about it (if they notice). And yes it will expose the interest income to social security/medicare taxes.
Also, if the interest runs through one LLC and there's business income and a solo 401k set up with another LLC, (both owned by the same person) could the profits be pooled to calculate the total net profits?
I'm not sure but I think the interest would have to come from an account owned by the business with the solo 401k. Check with your accountant about these issues. This is not my area of expertise.
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