Do you work for yourself?
Then take a look at the solo 401(k), which marries a traditional employee retirement savings account to a small business profit-sharing plan. To have a solo 401(k), you must either be the lone worker at your business, or its only full-time employee.
Imagine nearly tripling your retirement savings potential.
With a solo 401(k), you have a chance to ramp up your retirement savings and reduce your tax bill at the same time. Here are the details:
– As an employee, you can defer up to $19,000 of your compensation into a solo 401(k). The yearly limit is $25,000 if you are 50 or older, for catch-up contributions are allowed for these plans. (Your annual employee contribution cannot surpass your earned income or salary.)
– As an employer, you can have your business make a tax-deductible, profit-sharing contribution of up to 25 percent of your compensation as defined by the plan. If your business isn’t incorporated, the annual employer contribution limit is 20 percent of your net earnings rather than 25 percent. If you are a self-employed individual, you must calculate the maximum amount of elective deferrals and non-elective contributions you can make using the methods in IRS Publication 560.
– Total employer + employee contributions to a solo 401(k) are capped at $56,000 for 2019.
– The annual employer contributions you make are tax-deductible, up to IRS limits.
Are you married?
If your spouse earns income from your business, then he or she can also make an employee contribution to the plan in 2019, and you can make another profit-sharing contribution on your spouse’s behalf.
You can “go Roth” with your solo 401(k). The annual employee contribution limits for a Roth solo 401(k) are the same as those for any 401(k): $19,000 for individuals under 50, and $25,000 for individuals 50 or older. Only employee contributions can be Roth contributions.