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Advisory Financial Services is a bi-coastal fee only comprehensive financial services firm a Registered Investment Advisory with over 30 years financial services experience committed to helping our clients improve their long-term financial success. 

 SELF EMPLOYED BUSINESS OWNER ALERT !!    LOOKING FOR TAX DEDUCTIONS 

 

The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:

2022 - 2023 401K SOLO PLAN CONTRIBUTION LIMITS

In 2022, the IRS increased the employee deferral $1,000 after remaining the same for the previous two years. For 2023, you can contribute an additional $2,000 to a 401(k) plan. In addition, the catch-up contribution, for those at least age 50, has also increased $1,000 to a total of $7,500. Further, the employer contribution has increased $3,000 from 2022, equaling the increase for this past year.

Those with self-employment income can contribute as both the employee and employer. This means anyone with a Solo 401(k) plan may contribute up to $66,000 in 2023, an increase of $5,000. If you are at least age 50, you may contribute up to $73,500, an increase of $6,000. A percentage of your business/self-employment income is used to determine the amount you can contribute as the employer. The compensation used for this calculation increases to $330,000, which is $25,000 more than 2022.

Plus, if your employer allows for them, you can contribute after-tax funds up to the new annual limit of $66,000 or $73,500. After-tax contribution should generally only be considered when employing the Mega Backdoor Roth strategy.

It's important to keep in mind, that the overall contribution limit is for all 401(k) plans, and types of contributions in the aggregate. Therefore, if you contribute to a 401(k) plan through your employer, this lowers the amount you can save in your Solo 401(k) plan. Obviously, if you only have one 401(k) plan, you may contribute the maximum to that plan.                             

  • New Accounts must be set up prior to December 31 each calendar year but not funded until the next tax filing deadlines usually April 15 ..... 

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