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Individuals are rushing to complete their 2013 tax year return as well as asking yourself how they can conserve tax obligation for the 2014 tax year. The Solo 401( k) is a method that couple of utilize. It is created for local business owners that have just family workers. The limit is 2 individuals, which generally is business proprietor and the spouse. The Solo 401( k) is not a brand-new type of 401( k) strategy and also has the same guidelines as well as needs as any other 401( k) plan. More details can be located on the Internal Revenue Service website (1) as well as look for "Retirement-Plans-One_Participant-401k-Plans".

Just how much can one contribute? The business owner uses two hats in a 401( k) plan: employee as well as employer. Contributions can be made to the plan in both capabilities. The owner can elect to delay as much as 100 percent of compensation (also known as gained earnings for the independent) as much as $17,500 for both 2013 and also 2014 tax years. If he is age 50 or over, there can be an extra $5,500 (called the "catch-up" payment) to make the total $23,000 per year.

The 2nd part is the company contribution of approximately either 25 percent of the payment defined by the strategy, usually wages, or a various computation for the independent individual. One specifies one's payment as "earned revenue", which is net earnings from self-employment after deducting fifty percent of one's self-employment tax (relied on Set up SE). 20 percent of this number is what the company payment is. The total of both the staff member wage deferral in addition to the company payment can not exceed $51,000 for 2013 and $52,000 for 2014. If the person is age 50 or over, there can be an extra $5,500 "catch-up" contribution, making the total optimum payment to the Solo 401( k) prepare $56,500 for 2013 as well as $57,500 for 2014.

Instance of an Arrange C, unincorporated small company, where the owner goes to the very least age 50 as well as the net earnings in 2014 is $200,000:

One computes the Area 1402(a)( 12) Deduction, which reduces the number to $184,700. Next one uses Set up SE to compute FICA as well as Medicare Tax, which completes $19,864.30. Fifty percent of this is $9,932,15, as well as is subtracted from $200,000. The result is $190,067.85 of Self-Employment Revenue. The maximum Employee Wage Deferment contribution is $17,500 plus $5,500 or $23,000. The optimum employer revenue sharing contribution is $38,013.57 if one takes 20 percent of $190,067.85. The total of both payments is $61,013.57. Nevertheless, one can not exceed the complete limitation of $57,500. Note: a detailed worksheet for this computation can be found in Internal Revenue Service Magazine 560. In contrast, the contribution restriction for a STRAIGHTFORWARD IRA plan would certainly be $20,035.96 or $38,013.57 for a SEP Individual Retirement Account plan. One can add significantly even more to a Solo 401(k) rather than these other 2 employer Individual Retirement Account plans, and also definitely much more than the $6,500 limitation for a conventional specific IRA plan.

Due dates: One must develop your Solo 401(k) strategy by December 31, 2014, if you wish to make a payment for tax year 2014 as well as reduce gross income. The payments should be funded by your tax-filing due date. If one declare the 6-month expansion prior to the April 15, 2015 deadline to file one's 2014 income tax return, one would have up until October, 15, 2015, to make the money contribution.


The Solo 401( k) is not a brand-new type of 401( k) plan and also has the same policies and also requirements as any type of various other 401( k) plan. The company proprietor wears two hats in a 401( k) strategy: employee as well as company. If the person is age 50 or over, there can be an additional $5,500 "catch-up" payment, making the complete maximum payment to the Solo 401( k) intend $56,500 for 2013 and $57,500 for 2014.

One can contribute significantly even more to a Solo 401(k) rather of these other two company Individual Retirement Account plans, as well as absolutely much more than the $6,500 limitation for a typical individual IRA plan.

Due dates: One have to learn more about setting up a Roth Solo 401k establish your Solo 401(k) plan by December 31, 2014, if you desire to make a payment for tax year 2014 as well as lower taxed income.