Individual 401k Contribution Limit - How to Calculate for Sole Proprietor

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
keyfort
Posts: 108
Joined: Thu Apr 04, 2019 12:46 pm

Individual 401k Contribution Limit - How to Calculate for Sole Proprietor

Post by keyfort » Mon Dec 02, 2019 11:01 pm

Edit: I think using p560.pdf of the IRS's form, page 23, I have figured it out, but it sure was complicated at the beginning!

And the thing I was missing was that you can only take 20% as a maximum contribution rate for self employed, apparently, and then you have to use the IRS rate table to get that as a fraction, not just use 0.2! If I've read it right...
Last edited by keyfort on Mon Dec 02, 2019 11:29 pm, edited 1 time in total.

fyre4ce
Posts: 352
Joined: Sun Aug 06, 2017 11:29 am

Re: Individual 401k Contribution Limit - How to Calculate for Sole Proprietor

Post by fyre4ce » Tue Dec 03, 2019 11:03 am

keyfort wrote:
Mon Dec 02, 2019 11:01 pm
Edit: I think using p560.pdf of the IRS's form, page 23, I have figured it out, but it sure was complicated at the beginning!

And the thing I was missing was that you can only take 20% as a maximum contribution rate for self employed, apparently, and then you have to use the IRS rate table to get that as a fraction, not just use 0.2! If I've read it right...
The rate table throws people off sometime. It's important to realize that the maximum 25% and 20% are actually the same number. The 25% is not counting the contribution, and the 20% does count the contribution. For a simple example, if you earn $100k from the business after subtracting 1/2 SE tax (Line 3 in the worksheet you reference), then you can contribute $20,000, which is 20% of total net business profit, and 25% of what's left over after the contribution is subtracted ($80,000).

aristotelian
Posts: 6441
Joined: Wed Jan 11, 2017 8:05 pm

Re: Individual 401k Contribution Limit - How to Calculate for Sole Proprietor

Post by aristotelian » Tue Dec 03, 2019 11:08 am

I use the calculator on the Oblivious Investor website and then confirm using Turbotax when filing. They always come out the same.

Investing.Newbie
Posts: 68
Joined: Wed Oct 11, 2017 1:23 pm

Re: Individual 401k Contribution Limit - How to Calculate for Sole Proprietor

Post by Investing.Newbie » Tue Dec 03, 2019 6:12 pm

Fidelity has a solo 401K calculator: https://scs.fidelity.com/products/mobil ... bile.shtml Hope this helps !

Post Reply