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Another solo 401k and 401k question

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  • Another solo 401k and 401k question

    hey so this year I have w2 and 1099 income.

    i have a 401k and edp with the w2.  I will contribute the max (total of 54k)

     

    say i make 100k at the 1099. What is the max I can contribute to the solo 401k?  Is it 0.2(100,000-(100,000*0.0145) =19710?

     

    the 0.0145 being half the Medicare tax since I'll already have hit the max for the social security

     

    thanks

  • #2
    It is 20% of net self-employment income (net business profit - 1/2 SE tax).

    So if your net business profit (revenue - expenses) = $100K, then your amount is correct.

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    • #3
      You need to subject your deducted expenses from your earnings to figure the maximum employer contribution since it's "net profit," i.e. income minus expenses, then minus half SE tax.

      So if you had $100,000 in earnings, $10,000 in expenses, and are above the SS exemption, then you'd owe 0.20 * (100,000 - 10,000) * (1 - [0.029÷2]) = $17,739. If you had no expenses, then your calculation is correct...but you probably had some and would do well to deduct them.

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      • #4




        hey so this year I have w2 and 1099 income.

        i have a 401k and edp with the w2.  I will contribute the max (total of 54k)

         

        say i make 100k at the 1099. What is the max I can contribute to the solo 401k?  Is it 0.2(100,000-(100,000*0.0145) =19710?

         

        the 0.0145 being half the Medicare tax since I’ll already have hit the max for the social security

         

        thanks
        Click to expand...


        Another thing to note.  If you can max out your W2 401k with profit sharing only (which can only be done if you work for a practice that employs a good TPA capable of doing this), then you will have another $18k available to contribute to a solo 401k.  Chances are that if you work for a hospital that won't be possible.  But if it is a group practice, then there is a real possibility to ask the TPA whether they can allow you to max out your $54k with profit sharing only.  This will allow you to put the salary deferral of $18k into your solo 401k, and this is an advantage especially if your 1099 income is not large enough to max out the solo 401k with profit sharing only.
        Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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        • #5
          Thanks guys.  I didn't know it was net profits.  Makes it a little more difficult to forecast my projected revenue.

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