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| Retirement Contribution Limits |
Tax Year 2008 |
Tax Year 2007 |
| Elective salary deferral / annual contribution limits: |
| Solo 401(k), Roth 401(k), 403(b), and federal Thrift Savings Plan |
$15,500 |
$15,500 |
| Solo-401(k), 403(b), and SEP IRA plans total annual employer + employee contribution limit - (Section 415 limit): |
$46,000 |
$45,000 |
| Extra "catch-up" contribution limit allowed for individuals age 50 or older: |
| * 401(k) plans, 403(b) plans, and Roth plans |
$5,000 |
$5,000 |
| No "catch-up" available for SEP or Keogh plans |
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| IRA contribution limit (traditional and Roth IRAs): |
$5,000 |
$4,000 |
| * IRA "catch up" |
$1,000 |
$1,000 |
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How much can you contribute to your 401(k)?
The 401(k) is a flexible retirement plan that allows contributions from:
- Salary deferral (employee contribution),
- Profit sharing (employer contribution), or
- A combination of both.
A self-employed 401k owner can contribute as the employer, the employee, or as both. Contributions to the 401k are discretionary which means you elect to contribute or not.
Maximum Total 401(k) Contribution - The maximum (salary deferral plus profit sharing) that can be contributed to a 401k in 2008 is $46,000. An added contribution of up to $5,000 in "salary deferral catch-up" is allowed for those 50 or older, for a total possible contribution of $51,000. Contributions cannot exceed 100% of earned income and they can be made as soon as the income has been earned.
Maximum Salary Deferral Contribution - The maximum that can be contributed from salary deferrals in 2008 is $15,500 plus up to $5,000 "catch-up" contribution for those age 50 or more, for a total of $20,500. Salary deferral contributions are pre-tax and thus reduce the amount of your salary subject to taxes.
Roth 401(k) Contributions
The Self-Employed 401K plan we offer allows you to place a portion or all of your salary deferral contribution into a Roth section of your 401(k) or 403(b). Contributions to the Roth section are from after-tax income, so these contributions do not reduce your taxes immediately. However, unlike other retirement plan contributions, Roth distributions including earnings are tax-free provided certain requirements are met.
Maximum Profit Sharing Contribution - The maximum that can be contributed from the business to your 401k account is 25% of your income or $30,500, whichever is less. (For unincorporated business, income is generally your net business profit from Schedule C, Schedule C-EZ, Schedule F, or Schedule K-1 of your Form 1040. For a corporation or subchapter S, income would be total wages as reported on IRS Form W-2). The profit sharing contribution is not counted taxed as income to you and is a business expense that reduces your business' taxable income.
Feel free to use the Self Employed Owner Only Calculator as a contribution guide.
What is the deadline for you contribute to your 401(k)?
Salary deferrals contributions - For W-2 wage earners, salary deferrals to your self-employed 401(k) account must be made by the last pay period of the calendar year for which the deduction is made. For unincorporated business owners salary deferrals can be made until your tax-filing deadline plus any extensions.
Profit sharing contributions - You can contribute to your self-employed 401(k) for a tax year up to the time of your company's tax filing deadline for that tax year, including any extensions. You
should consult with your tax advisor regarding your contribution amount and deadline before making any financial commitments regarding the items discussed here. |
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