Finance Dave
Thinks s/he gets paid by the post
This question/topic is not for me, but for a friend...so I may not have answers to any questions...but...
He is self-employed, makes about $140k/year, has a spouse, he's 62. He recently opened a "self employed" 401k through FIDO (he said they used one of their banks, whatever that means). I have a few questions:
1) What is the difference between a "self-employed 401k" and a "solo 401k"?
2) I'm reading articles, and below is an excerpt from the FIDO website on the self-employed 401k. How do you know how much you can contribute if you don't know your AGI until after the calendar year is over?
3) Is there a spousal contribution allowed also? Or is it just one number?
4) It looks to me like he can defer 100% of his comp, but who tracks whether that will hit the $23k deferral max and stop the deferrals?
5) I don't know if he pays himself a "salary" or "compensation"....so the 25% mentioned below would that just be 25% of the net income? If you don't pay yourself a salary, can you do the first $23k at all?
6) To check my math, does it look right that he could contribute the following? $23k deferral + $7,500 catch-up + $35k (25% x $140k profit) = $65,500
Any tips helpful. Thanks in advance.
From FIDO website
"Self-employed 401(k) contribution limits
The highlight of the self-employed 401 (k) is the ability to contribute to the plan in two ways. According to 2024 IRS 401(k) and Profit-Sharing Plan Contribution Limits, as an employee, you can make salary deferral contributions equal to the lesser of $23,000, or 100% of your compensation. If you're at least 50 years old or will turn 50 years old in 2024, your savings options are even higher because you can add an extra $7,500 in catch-up contributions each year. Then, as the employer, you can make a contribution of up to 25% of your compensation each year.
Total contributions to a participant’s account, including catch-up contributions for those age 50 and over, cannot exceed $76,500 for 2024. For those under 50, total contributions cannot exceed $69,000.
Together, those contributions can add up to significant annual savings. For example, if you're an independent consultant under 50 (with no employees) with 2024 compensation of $100,000, you could elect to defer up to $23,000. Then, as the employer, you could contribute $25,000 more based on your compensation minus business expenses and self-employment taxes. In total, you could set aside $48,000 in one year to help build your retirement nest egg."
He is self-employed, makes about $140k/year, has a spouse, he's 62. He recently opened a "self employed" 401k through FIDO (he said they used one of their banks, whatever that means). I have a few questions:
1) What is the difference between a "self-employed 401k" and a "solo 401k"?
2) I'm reading articles, and below is an excerpt from the FIDO website on the self-employed 401k. How do you know how much you can contribute if you don't know your AGI until after the calendar year is over?
3) Is there a spousal contribution allowed also? Or is it just one number?
4) It looks to me like he can defer 100% of his comp, but who tracks whether that will hit the $23k deferral max and stop the deferrals?
5) I don't know if he pays himself a "salary" or "compensation"....so the 25% mentioned below would that just be 25% of the net income? If you don't pay yourself a salary, can you do the first $23k at all?
6) To check my math, does it look right that he could contribute the following? $23k deferral + $7,500 catch-up + $35k (25% x $140k profit) = $65,500
Any tips helpful. Thanks in advance.
From FIDO website
"Self-employed 401(k) contribution limits
The highlight of the self-employed 401 (k) is the ability to contribute to the plan in two ways. According to 2024 IRS 401(k) and Profit-Sharing Plan Contribution Limits, as an employee, you can make salary deferral contributions equal to the lesser of $23,000, or 100% of your compensation. If you're at least 50 years old or will turn 50 years old in 2024, your savings options are even higher because you can add an extra $7,500 in catch-up contributions each year. Then, as the employer, you can make a contribution of up to 25% of your compensation each year.
Total contributions to a participant’s account, including catch-up contributions for those age 50 and over, cannot exceed $76,500 for 2024. For those under 50, total contributions cannot exceed $69,000.
Together, those contributions can add up to significant annual savings. For example, if you're an independent consultant under 50 (with no employees) with 2024 compensation of $100,000, you could elect to defer up to $23,000. Then, as the employer, you could contribute $25,000 more based on your compensation minus business expenses and self-employment taxes. In total, you could set aside $48,000 in one year to help build your retirement nest egg."
