Help calculating max solo-401k contribution

[Dilaudidopenia]

Despite how much I read about solo-401Ks, I feel like I am still struggling to come up with a "safe" max contribution limit to a solo 401k, especially since I have 403b contributions from this year. I am a graduating medical resident (hence where the 403b came from) and will be working a locums IC job starting this summer. Figure about ~230K 1099 income for 2017 with not a ton of extra deductions (as company compensates for travel - they report these compensations as income on the 1099 and then I can deduct them - so in essence the ~230K figure I threw out will be my approximate actual clinical hourly compensation for the year net of the travel expenses). Maybe I'll have an extra 2K deduction for relocation expenses and a few hundred to 1K more for supplies.

If "X" is my 2017 employee 403b contribution and "Y" is my 2017 employer 403b contribution, what are the maximum employee/employer contributions I can make to my solo-401k?

If someone could show me the math including the calculation of "net adjusted business profits" I think that would greatly improve my understanding.

[rohitkhannaesq]

I found this website to be useful in figuring out max solo-401k contributions.  However, I'm not sure how the 403(b) comes into the calculation.  I thought, and I could be wrong, but you are only allowed to put in $18,000 throughout all 401k, 457(b), etc...I'm not sure if the 403(b) gets counted towards that.  I'm curious if you can roll the 403(b) over to your new solo 401k? I'm sure someone out there has a better answer.

 

[Faithful Steward]

Dilaudidopenia wrote:

Despite how much I read about solo-401Ks, I feel like I am still struggling to come up with a “safe” max contribution limit to a solo 401k, especially since I have 403b contributions from this year. I am a graduating medical resident (hence where the 403b came from) and will be working a locums IC job starting this summer. Figure about ~230K 1099 income for 2017 with not a ton of extra deductions (as company compensates for travel – they report these compensations as income on the 1099 and then I can deduct them – so in essence the ~230K figure I threw out will be my approximate actual clinical hourly compensation for the year net of the travel expenses). Maybe I’ll have an extra 2K deduction for relocation expenses and a few hundred to 1K more for supplies.

If “X” is my 2017 employee 403b contribution and “Y” is my 2017 employer 403b contribution, what are the maximum employee/employer contributions I can make to my solo-401k?

If someone could show me the math including the calculation of “net adjusted business profits” I think that would greatly improve my understanding.

Click to expand...

Don't you wish the IRS regulations were written in plain English?

403(b) plans are an exception to the general multiple employer rule set forth by the IRS. As such, you would be treated as if you are participating in one employer’s retirement plan, which limits your aggregate contributions to both plans to $54,000, for 2017.

With that in mind, here's the answer to your questions:

1. The Salary Deferral contribution to your Solo 401(k) is limited to $18,000 MINUS the amount of salary deferral to your 403(b).


2. Your Profit Share contribution is limited to the lesser of $54,000 OR 20% of net earnings for self-employed individuals MINUS the total of your employer contributions to the 403(b) MINUS the total of ALL salary deferral contributions to ALL plans.

Shame your employer's plan is not a 401(k), instead of a 403(b). That would have allowed you to make much larger profit sharing contributions.

Hope this helps!

[ENT Doc]

You have to separate the employee and employer portions.  The max employee contribution you can make is $18,000 - that's including both the 401k and 403b.  For the 403b, the employer contribution can theoretically be up to $36,000 ($54,000 total for both employer + employee minus the $18,000 max employee contribution).  So say you contributed $8,000 to your 403b.  You can contribute $10,000 to your 401k as an EMPLOYEE.  Now, you can also contribute an EMPLOYER portion to your i401k, up to (again) the max of $54,000 - in this case $44,000.  The way you calculate your real-life contribution is based on a worksheet in the IRS Publication 560, page 22 I think:

https://www.irs.gov/pub/irs-pdf/p560.pdf

You *may* be able to contribute to the max of $54,000 for your i401k if you wanted with that salary.  Take a look at schedule C as well.  You'll have to know how much of your 403b salary went towards the social security limit (that went up this year) because this will affect your self-employment tax for your i401k business, which (in part) gets subtracted from your net income and then multiplied by 20% to get your employer contribution for the i401k.  Lots of moving parts.

[Dilaudidopenia]

Thanks for the help so far.  Still having trouble wrapping my head around the "employer" contribution limit.  When I plug a raw 230k into online calculators (http://www.bankrate.com/calculators/retirement/self-employed-401-k-calculator.aspx) I've found it says I should be able to max the 401K to 54k.  However when I calculate it out, I appear to be off.  If someone could correct my calculations it'd be appreciated:

Let's just assume there were no expenses (aside from the deductible portion of the self employment tax), for simplicity's sake.  And let's say the employee 403b deferral was $1,500 and the employer contribution was $500. Online calc says self employment tax on 230k should be ~21k.

The max solo-401K employee deferral should be 18,000 - 1,500 = $16,500...easy enough

So the employer contribution should be:

230k - (1/2 * 21k) = ~220k = net adjusted business profit

220k * 0.20 = $44,000

44,000 - 16,500 - 1,500 - 500 = $26,000

 

So by this, I am calculating the max total allowable contribution to be 16,500 + 26,000 = 42,500...which comes in far less than the online calculators do, even after accounting for the 403b.

 

I'm confused  :?

 

[spiritrider]

First, accept that you can not use the simple online contribution calculators.

They do not take into account that you might have W-2 employment where you already paid FICA taxes that will affect the SE tax. You need to complete Schedule SE to determine the 1/2 SE tax to subtract from your net business profit.

Also, they do not take into account any 403b contributions.

For sake of calculations let us assume your net self-employment income = $220,000. Your calculated maximum employer contribution is $44,000. This all it is. You do not use this in determining your 415c maximum possible contribution. For that you use the 415c maximum annual addition limit (2017 = $54,000).

The maximum one-participant 401k employer calculation is $54,000 - $1,500 (403b employee deferral) - $500 (403b employer contribution) - $16,500 (one-participant 401k employee deferral) = $35,500.

In this example, the $35,500 limited by 415c is less than the calculated $44,000. $35,500 would be the allowed contribution. The only way to know the exact amount is when filing your tax return.

I explained all of this to you in the other forum where you posted this. I also, cautioned you to be conservative with your employer contribution during the  the tax year. You can NOT normally remove an excess employer contribution made during the tax year, it will be subject to a 10% excise tax and require the 401k plan to file a Form 5330 for a minimum of two tax years.

Do not be in such a hurry. Wait until you file your tax return next year to maximize your employer contributions. Also, you can not make employer contributions before the net self-employment income they are based on is earned or a pro-rated amount based on a reasonable projection of the year's net self-employment income.