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2015 Solo 401k contribution limits

2015 Solo 401k contribution limits

Have you ever wondered how much money you can put into a retirement account? It depends on what the current contribution limits are. These contribution limits typically go up a bit periodically, often every year or two, based on cost-of-living adjustments. Here we’ll look at the 2015 Solo 401k contribution limits.

Every account type has a different set of contribution limits, or dollar amount of new funds that can be added in a given year. An IRA for instance, has a limit of $5,500 for new contributions in 2015. One of the many advantages of the Solo 401k, however, is the much higher contribution limits it touts when compared to an IRA.

For 2015, a Solo 401k participant under 50 years of age can contribute up to $53,000 to his or her plan! That’s about ten times as much as with an IRA LLC, a similar structure that people sometimes utilize to get checkbook control of their retirement funds (often because they don’t know about or are not eligible for the Solo 401k).

Solo 401k participants are able to put away so much each year because they are seen as serving two roles in their company, that of both the employee and the employer. In fact, there are separate “employee” and “employer” contribution pieces that make up the total contribution limit.

Let’s take a look at the example of someone under 50 years of age that can contribute up to $53,000, as mentioned above.

The “employee” elective deferral limit for this participant is $18,000 for 2015. That means this person could stash away 100% of the first 18,000 in income! The “employer” non-elective contribution (at times also referred to as the “profit-sharing contribution”) is made according to a percentage of the participant’s income up to the total limit. For plans adopted by corporations, that percentage is 25. For plans adopted by other entities such as LLCs and sole proprietorships, that percentage is 20.

If the plan participant is 50 years of age or older in the contribution year, an additional catch-up contribution effectively increases these limits. The 2015 catch-up contribution is $6,000. This makes the employee contribution limit $24,000 and the total contribution limit $59,000 for 2015.

Remember, these contribution limits have to do with new money being put into the retirement account from earned income. Transfers and rollovers from existing retirement accounts do not count toward these contribution limits. There is no limit on the amount of funds that can go into a Solo 401k via an eligible transfer or rollover, such as from a traditional IRA or previous employer 401k.