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how much can I contribute in individual 401k

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  • how much can I contribute in individual 401k

    Hi!

    I opened up an individual 401k at Vanguard for my side gig, but wasn't completely sure how much I can contribute there.

    I have made about $6000 this year in this with additional $2000 as gift card (est $8000 taxable income) , and I wanted to use all of it as investment. I have another W2 job that I maximized 401k there.

    It appears I can contribute 25% of $8000 as an employee, and upto $20500 as an employer - so If I just contribute $8000 straight into this individual 401k as an employer contribution, would it be ok?
    (ref: https://www.irs.gov/retirement-plans...ant-401k-plans)

    My understanding previously was I can only contribute into individual 401k upto 25% of total income that year , but after reading the IRS website, I feel like I can contribute even more (again, upto $20500 /year in this separate individual 401k in addition to my W2 401k).


    Any help would be appreciated. Thank you!!




  • #2
    I'm answering my own question but I found that there is a way to calculate how much I can contribute after reading through the website more thoroughly

    https://www.irs.gov/retirement-plans...-and-deduction


    So it seems that I'll have to calculate how much tax I will pay from this income through Turbotax first at the end of the year and based on that, will need to make maximum contribution allowed, definitely not entire $8000.

    Please correct me if I'm wrong. Thank you!

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    • #3
      you have employee and employer flip around, can contribute 20500 as employee and then 25% of employer wages i think

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      • #4
        • There is one employee deferral limit (2022 = $20.5K) across all 401k, 403b and SIMPLE IRA plans. If you maximize the employee deferral limit at your W-2 employer, you can not make any employee deferrals to a one-participant 401k plan.
        • There is a separate (employee + employer) annual addition limit (2022 = $61K) for each unaffiliated employer. Your net annual addition limit can not be > 100% of compensation.
        • Maximum self-employed one-participant 401k contributions are based on your net earnings from self-employment (self-employed earned income) = business profit - 1/2 SE tax.
        • While maximum employer contributions are 25% of compensation. Self-employed employer contributions are not compensation. The contribution itself reduces compensation. Therefore, maximum self-employed employer contributions are calculated as 20% of self-employed earned income.
        • Your maximum one-participant 401k employer and total contributions will be < $2K on $8K in business profits.

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