Help with individual 401k math.

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Topic Author
Dunder Mifflin
Posts: 14
Joined: Sat Dec 15, 2018 11:37 am

Help with individual 401k math.

Post by Dunder Mifflin » Thu Aug 15, 2019 10:08 pm

Hello all,

I need some help with my individual 401k math. :confused

My current situation is I work full times as a W2 employee and will max out my 403b this year for a total of $19,000 as well as my Roth IRA through a backdoor contribution in the amount of $6000. My employer will be contributing around $7500 to my 403b through the match available. I have started picking up some side work on an as needed basis and am considered an independent contractor who will receive a 1099 at the end of the year. I consider myself a sole proprietor and am not incorporated.

From my research I believe I am limited to a max contribution to the individual 401k of $29,500 this year as I must aggregate my contributions with a 403b plan. ( 2019 limit of $56,000 - employee 403b contribution of $19,000 - employer 403b contribution of $7500 = $29,500).

I am aware that I am unable to make employee contributions to my individual 401k due to maxing out my 403b for 2019 since the feds consider this plan to be controlled by 403b participant.

I can make contributions as an employer though to the individual 401k, but this is where my confusion starts.

Is it correct that I can make employer contributions in the amount of 20% of net profits which is calculated as net income - 1/2 of self employment tax?

For simplicity sake I currently make about $2400 per shift and one half of self employment tax is 7.65%. From my math shown below is it correct that I can contribute $443.28 for every twelve hour shift I work to my individual 401K as the employer up to a max of $29,500 for 2019?


100% - 7.65% = 92.35%

$2400 * 92.35% = $2216.40

$2216.40 * 20% = $443.28


Thank you for your time and help!

HomeStretch
Posts: 1198
Joined: Thu Dec 27, 2018 3:06 pm

Re: Help with individual 401k math.

Post by HomeStretch » Thu Aug 15, 2019 11:05 pm

You have FICA withheld on your W-2 earnings. The employer share of self employment tax is 7.65% up to the 2019 social security wage base of $132,900 and 2.9% > $132,900.

BusterMcTaco
Posts: 302
Joined: Tue Jul 11, 2017 6:36 pm

Re: Help with individual 401k math.

Post by BusterMcTaco » Thu Aug 15, 2019 11:10 pm

You can contribute the full $56k per unrelated employer, although that's a moot point until you make over $200k 1099 income. There is another limiting factor for low earning but I think that only comes into play if you are doing employee contributions (deferrals). Spirit Rider will likely chime in shortly but, if not, look for his other posts on the subject.

Spirit Rider
Posts: 11017
Joined: Fri Mar 02, 2007 2:39 pm

Re: Help with individual 401k math.

Post by Spirit Rider » Fri Aug 16, 2019 2:38 am

Dunder Mifflin wrote:
Thu Aug 15, 2019 10:08 pm
I am aware that I am unable to make employee contributions to my individual 401k due to maxing out my 403b for 2019 since the feds consider this plan to be controlled by 403b participant.
The employee elective contribution limit (2019 = $19K) is across all 401k, 403b, SARSEP and SIMPLE IRA accounts. This has nothing to do specifically with it being a 403b plan.

The unique 403b limitation is that a 403b plan's employee + employer annual additions must be aggregated with the annual additions of any business > 50% owned by the 403b participant.
Is it correct that I can make employer contributions in the amount of 20% of net profits which is calculated as net income - 1/2 of self employment tax?
It is correct that your base maximum employer contribution is 20% of your self-employed earned income (business profit - 1/2 SE tax). Business profit = business income - business expenses.

However, as alluded to by @BusterMcTaco, one-participant 401k employer contribution are limited to the lesser of:
  • Annual addition limit (2019 = $56K) - 403b annual additions - any one-participant 401k employee contributions.
  • (Self-employed earned income - any one-participant 401k employee contributions) / 2.

Topic Author
Dunder Mifflin
Posts: 14
Joined: Sat Dec 15, 2018 11:37 am

Re: Help with individual 401k math.

Post by Dunder Mifflin » Mon Aug 19, 2019 7:22 pm

Spirit Rider wrote:
Fri Aug 16, 2019 2:38 am
Dunder Mifflin wrote:
Thu Aug 15, 2019 10:08 pm
I am aware that I am unable to make employee contributions to my individual 401k due to maxing out my 403b for 2019 since the feds consider this plan to be controlled by 403b participant.
The employee elective contribution limit (2019 = $19K) is across all 401k, 403b, SARSEP and SIMPLE IRA accounts. This has nothing to do specifically with it being a 403b plan.

The unique 403b limitation is that a 403b plan's employee + employer annual additions must be aggregated with the annual additions of any business > 50% owned by the 403b participant.
Is it correct that I can make employer contributions in the amount of 20% of net profits which is calculated as net income - 1/2 of self employment tax?
It is correct that your base maximum employer contribution is 20% of your self-employed earned income (business profit - 1/2 SE tax). Business profit = business income - business expenses.

However, as alluded to by @BusterMcTaco, one-participant 401k employer contribution are limited to the lesser of:
  • Annual addition limit (2019 = $56K) - 403b annual additions - any one-participant 401k employee contributions.
  • (Self-employed earned income - any one-participant 401k employee contributions) / 2.

Thanks everyone for your excellent responses! Exactly the additional information I was seeking.

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