Solo 401k Limits for 2023
The Solo 401k is an individual retirement account that allows self-employed individuals or small business owners to save for retirement. It offers tax advantages to help you save for your future. The contribution limits for the Solo 401k are set by the Internal Revenue Service (IRS) and can change from year to year. In 2023, the annual contribution limit for the Solo 401k will remain the same as it was for 2022.
Eligibility for a Solo 401k
In order to be eligible to open a Solo 401k, you must be self-employed with no full-time employees other than yourself, your spouse, and any business partners. You must also be earning income from your business. If you meet these criteria, then you are eligible to open a Solo 401k.
2023 Contribution Limits
In 2023, the contribution limit for the Solo 401k will remain the same as it was for 2022. The contribution limit for the year is $58,000, or $64,500 if you are 50 years of age or older. This includes both employer contributions and employee contributions. It is important to note that the contribution limit includes contributions to both traditional and Roth Solo 401ks.
Employer Contributions
The amount of employer contributions you can make to a Solo 401k are limited to 25% of your income. For example, if you earn $100,000 in 2023, you can contribute up to $25,000 as an employer contribution to your Solo 401k. It is important to note that the 25% limit does not include profits from self-employment. It only applies to earned income.
Employee Contributions
In addition to employer contributions, you can also make employee contributions to your Solo 401k. Employee contributions are limited to $19,500 for the year 2023. If you are 50 years of age or older, you can make an additional catch-up contribution of $6,500 for a total of $26,000. These contributions can be made in either pre-tax or post-tax form, depending on the type of Solo 401k you have.
Catch-Up Contributions
If you are 50 years of age or older, you can make additional catch-up contributions to your Solo 401k. The catch-up contribution limit is $6,500 in 2023. This is in addition to the regular contribution limit and can be used to help you save more for retirement. It is important to note that the catch-up contribution limit applies to both traditional and Roth Solo 401ks.
Tax Benefits of the Solo 401k
The Solo 401k offers a number of tax benefits to help you save for retirement. All contributions to a traditional Solo 401k are tax-deductible, meaning that you can reduce your taxable income for the year. This can help to reduce your overall tax bill. In addition, any earnings within the Solo 401k grow tax-deferred, meaning that you won’t have to pay taxes on the earnings until you withdraw them in retirement.
Contribution Deadline
The deadline for making contributions to your Solo 401k for 2023 is December 31st. It is important to note that contributions must be made before the end of the year in order to be eligible for the tax benefits of the Solo 401k. Contributions can be made in either pre-tax or post-tax form, depending on the type of Solo 401k you have.
Conclusion
The Solo 401k is a great option for self-employed individuals and small business owners who want to save for retirement. In 2023, the contribution limits for the Solo 401k will remain the same as they were in 2022. The annual contribution limit is $58,000, or $64,500 if you are 50 years of age or older. This includes both employer contributions and employee contributions. It is important to note that contributions must be made before the end of the year in order to be eligible for the tax benefits of the Solo 401k.