A self-employed 401k plan is a great way to save for retirement if you are an entrepreneur or solopreneur. A self-employed 401k plan is also know as a Solo 401k plan. This article will discuss how much you can contribute to your self-employed 401k plan.
For 2021, the IRS says you can contribute up to $57,000 in your self-employed 401k plan. The amount should go up by $500 – $1,000 every one or two years.
If you’re at least age 50, then you can make an additional $6,000 catch-up contribution, which increases your limit to $62,000.
The $58,000 self-employed 401k plan limit consists of $19,500 from the employe and $38,500 from the employer. Therefore, to contribute the maximum to your self-employed 401k plan, you must pay yourself enough and have high enough operating profits.
In general, you can contribute up to the maximum employee amount to your Solo 401k plan + 20% of operating profits.
Here is the 401k maximum contribution limit chart for employee and employer for 2021.
Self-Employed 401k Historical Contribution Limits
For those of you who are self-employed or side-hustling with a full-time job, this article will help you figure out how much you can contribute to your tax-deferred Solo 401k with an example.
You can’t just write a check for $57,000 or $62,000 if you’re over 50. There’s a formula you need to follow based off your operating income. I’m personally shooting to contribute $100,000 a year pre-tax in a Solo 401(k) and SEP-IRA given I am an employee and a freelancer.
Remember, if your employer has you in a 401k plan, you can open up a SEP-IRA if you’re side hustling. And if your employer has you in a SEP-IRA, you can open up a self-employed 401k to contribute more pre-tax dollars to your retirement.
If your employer has you in a 401k plan, you can also open up a self-employed 401k. However, it wouldn’t make sense to do it because the total employee contribution is limited to $19,500 across all your 401k plans. The contribution limit goes up by $500 every couple years on average.