There are some new developments in the world of the Solo 401(k). Here are the highlights:
New Solo 401(k) Employee Contributions Limit for 2024
The IRS announced that for 2024, the employee deferral limit for all 401(k)s, including Solo 401(k)s, will be $23,000.
Solo 401(k) Catch-Up Contributions Limit for 2024
The IRS also announced that for 2024, the employee deferrals catch-up contribution limit remains $7,500. As a result, those aged 50 or older can contribute, in employee contributions, a maximum of the lesser of $30,500 ($23,000 plus $7,500) or earned income.
New Solo 401(k) All Additions Limit for 2024
The new all-additions limit for Solo 401(k)s is $69,000 (or earned income, whichever is less). For those aged 50 or older during 2024, the $66,000 number is $76,500 ($69,000 plus $7,500).
Wither Roth Employer Contributions?
One of the changes SECURE 2.0 ushered in was allowing Roth employer contributions to 401(k) plans, including Solo 401(k)s. Interestingly enough, three of the largest institutions offering Solo 401(k)s, Fidelity, Schwab, and Vanguard, have not added that feature to their Solo 401(k)s. Vanguard’s website goes so far as to affirmatively state it will not add the Roth employer contribution feature to their Solo 401(k) at this time.
I mention this development to inform the reader, not to criticize Solo 401(k) providers. If you’ve read some of my other work, you may know I don’t think a lack of Roth employer contributions in Solo 401(k)s is a problem.
UPDATE March 2, 2024: Today I learned that Schwab now offers Roth employee contributions (a change) and Roth employer contributions (also a change). Based on this January 21, 2024 post, I suspect this change occurred prior to the federal district court’s publishing of its decision in Texas v. Garland on February 27, 2024.
Ambiguity on New Schedule C Solo 401(k) Funding Deadline
UPDATE December 14, 2023: I Tweeted a thread about the provision that allows Schedule C solopreneurs to establish and fund a new Solo 401(k) with an employee deferral contribution after year-end. There is at least some concern that if one is diligent enough to establish a new Solo 401(k) prior to year-end they might not get the benefit of Section 401(b)(2)‘s funding deadline extension. If that is true (and to my mind this is an ambiguous issue), then the solopreneur establishing the new Solo 401(k) prior to year-end would need to either fund the employee contribution prior to year-end or elect to make an employee deferral contribution prior to year-end.
UPDATE March 2, 2024: There’s new uncertainty when it comes to the new Solo 401(k) establishment deadline for Schedule C solopreneurs looking to make a first-time employee contribution. A federal district court in Texas held on February 27, 2024, in Texas v. Garland, that the House of Representatives did not have a sufficient Quorum when it passed the Omnibus, which includes SECURE 2.0 and the Solo 401(k) deadline extension in SECURE 2.0 Section 317. Here’s my X/Twitter thread on the case and here’s my YouTube video on the case. Stay tuned to my YouTube channel for future updates!
2024 Update to Solo 401(k): The Solopreneur’s Retirement Account
Solo 401(k): The Solopreneur’s Retirement Account explores the nooks and crannies of Solo 401(k)s. On page 16 of the paperback edition, I provide an example of the Solo 401(k) limits for 2022 if a solopreneur makes $100,000 of Schedule C income. Here is a revised version (in italics) of the example (with the footnote omitted) applying the new 2024 employee contribution limit:
Lionel, age 35, is self-employed. His self-employment income (as reported on the Schedule C he files with his tax return) is $100,000. Lionel works with a financial institution to establish his own Solo 401(k) plan and choose investments for the plan. Lionel can contribute $23,000 to his Solo 401(k) as an employee deferral (2024 limit) and can choose to contribute, as an employer contribution, anywhere from 0-20% of his self-employment income.
Lionel’s maximum potential tax-advantaged Solo 401(k) contribution for 2024 is $41,587! That is a $23,000 employee contribution and a $18,587 employer contribution. Note there’s no change in the computation of the employer contribution for 2024 in this example.
On page 18 I provide an example of the Solo 401(k) contribution limits factoring in catch-up contributions. Here’s the example revised for 2024:
If Lionel turned 50 during the year, his limits are as follows:
- Employee contribution: lesser of self-employment income ($92,935) or $30,500: $30,500
- Employer contribution: 20% of net self-employment income (20% X $92,935): $18,587
- Overall contribution limit: lesser of net self-employment income ($92,935) or $76,500: $76,500
Amazon Reviews
If you have read Solo 401(k): The Solopreneur’s Retirement Account, you can help more solopreneurs find the book! How? By writing an honest, objective review of the book on Amazon.com. Reviews help other readers find the book!
FI Tax Guy can be your financial planner! Find out more by visiting mullaneyfinancial.com
Follow me on Twitter at @SeanMoneyandTax
This post is for entertainment and educational purposes only. It does not constitute accounting, financial, legal, investment, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, legal, investment, and tax matters. Please also refer to the Disclaimer & Warning section found here.