Fulcrum Self-Directed: Better Options for Your Retirment Savings

  • How It Works
    • What Is a Self-Directed Plan?
    • Benefits
    • How to Get Started
    • Why Fulcrum?
    • Articles
    • FAQ
  • Investments
    • Tax Liens
    • Precious Metals
    • Real Estate
    • Discounted Notes
    • LLCs
    • More Options
  • Plan Types
    • Self-Directed IRAs
    • Self-Directed Roth IRA
    • Solo 401(k)
    • Solo Roth 401(k)
    • Small Biz Owner 401(k)
  • Who It’s For
    • Entrepreneurs
    • Investors
    • Small Business Owners
  • Partners
  • Blog

What are the Contribution Limits for my Self-Directed 401(k)?

August 31, 2014 by John Park Leave a Comment

One of the benefits of a Self-Directed 401(k) is that the business owner can make both employee elective deferral contributions and employer profit share contributions.  To state it more simply, contributions can be made by both the participant and the business.  Employer profit share contributions can be  made even if the self-employed individual is a sole proprietor.

Employee Elective Deferrals (your contributions)

For 2014, the participant in a plan (whether sole proprietorship or incorporated entity) can contribute up to $17,500 per year.  These contributions can be made in either a pre-tax or Roth (after-tax) basis….and, even a combination of the two.  If the participant is over the age of 50, an additional $5,500 can be contributed (up to $23,000) as part of what the IRS calls a “catch-up” provision.  This level of contribution can be up to 100% of the individual’s self-employment income.

Important note:  While you can participate (e.g., you are a participant in your self-employed side business and a 401((k) participant in a W-2 employer’s plan) in more than one 401(k) plan as a participant, you must coordinate your employee elective deferral contributions….in simple terms you must still abide to the $17,500/$23,000 employee elective deferral.

Profit Sharing (Employer Contributions)

Through the role of employer, an additional contribution can be made to the plan in an amount up to 25% of the participant’s self employment compensation IF the business is an incorporated entity or 20% of the individual’s compensation if they are a sole proprietorship.

What is Your Total Potential Limit

If you qualified for the maximum contributions to your plan, the potential maximum contributions to your plan can reach $52,000 per year (for 2014) or $57,500 for persons over age 50.

You Say Your Spouse if Also Employed in Your Business?

If your spouse is a legitimate participant in the business, not only can the spouse rollover their funds into the plan, but the spouse can also make contributions to the plan based on the compensation they receive.  Now, if the participants qualify for the maximum contributions, the couples’ annual total contribution can be $104,000 for 2014 or $115,000 if both spouses over age 50.

Examples

Let’s use an easy illustration which demonstrates one’s ability to maximize contributions.  John Doe , age 40, is self-employed and operates his business as an S-Corp.  The business pays John $100,000 per year in compensation.

For 2014, the maximum deductible contribution John can make to his self-directed 401(k) account would be $42,500.  This is broken down into employee elective deferrals of $17,500 and a business profit share contribution of $25,000 (25% of $100,000).

Let’s use the same numbers for the sole proprietor.  For 2014, the maximum deductible contribution John can make to his self-directed 401(k) account would be $37,500.  This is broken down into employee elective deferrals of $17,500 and a business profit share contribution of $20,000 (20% of $100,000).

Please click here if this helped you.
0 people found this helpful.


Category: 401(k) Questions, Possibilities & Limitations

← Self Directed FAQs
mm

About John Park

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Subscribe Now

Free Course: 5 Investments You Can ONLY Make with a Self-Directed Plan
Your 401(k) or IRA will only allow you to invest in standard Wall Street investments.
You can't follow the herd and achieve above-average results.
Use your own expertise and invest as YOU choose.
See 5 top "off the beaten path" investments.

Fill out the form below to start your FREE Course

About John Park

John

As co-founder of Fulcrum Self-Directed, John Park believes in the power of self-directed plans tempered by the individual responsibility to operate the plan in compliance with IRS and DOL regulations. As such, Fulcrum Self-Directed is in a unique position to assist a client in establishing an IRS compliance self-directed plan, while guiding clients with their responsibility to operate and administer their plan.

Search

  • Home
  • About
  • Contact
  • Privacy
  • Terms

Copyright © 2022 · Parallax Pro Theme on Genesis Framework · WordPress · Log in