Solo 401k Contribution

Today TaxMama hears from Dabeler in the TaxQuips Forum, with this question. “2009 is my first year as a sole proprietor.  I set up a solo 401K in Dec 2009.  I made $185,000 on my 1099.  Can I put in the full $54,500 for 2009?  I am over 50.”

Hi Dabeler,

You’re doing well! But, did you remember to take your business expenses into account? They will reduce your Schedule C profit. Your contributions to your retirement account are based on  your profits.

OK, talk to the folks who set up or administer your 401K to learn exactly how to structure your contribution.

But, yes, most likely you may contribute the maximum of $54,500.

I just found an interesting explanation that may outline how the contributions are computed.  http://www.solo401kcontributionlimits.com/sole-proprietorship.htm

You can have up to $22,000 worth of salary deferrals for 2009 – and the rest may be a profit-sharing contribution.

If you were incorporated, and had not already taken care of the salary deferrals by writing a payroll check in December 2009, you would have lost that option. But since you file a Schedule C, you can’t be on salary. So that’s not a consideration .

If your spouse also works for and/or owns the business, you are both eligible for the contributions.

You should be working closely with someone who can guide you through this and set this up for you.

And remember, you can find answers to all kinds of questions about retirement contributions, and other tax issues, free. Where? Where else? At www.TaxMama.com .

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