For your Rocket Dollar Solo 401(k), you can contribute $19,500 + an employer match in 2021. The limit is $58,000.
There are three types of contributions to your Self-Directed Solo 401(k):
- Traditional (employee salary deferral, pre-tax)
- Roth (after-tax)
- Employer contribution or profit-sharing. You can choose one calculation period per taxable year. These are pre-tax deferrals only.
The maximum employee salary deferral is $18,500 for 2018, $19,000 for 2019, $19,500 for 2020 & 2021. You can contribute 100% of your income up to the $19,500 limit. Catch-up contributions of $6,500 are possible for persons 50 and over. The IRS calls these "elective deferrals" because you are choosing to make them as an employee.
You have two contribution limits and "buckets" to hit the $58,000 limit.
Since profit sharing and employer contributions can only be pre-tax, it might make sense to contribute to the Roth bucket for your elective/personal contribution and have the employer/business contribution cover your traditional contributions.
2018: $18,500 for a Traditional deferral or Roth personal contribution, $36,500 for a profit-sharing/employer contribution.
2019: $19,000 for a Traditional deferral or Roth personal contribution, $37,000 for a profit-sharing/employer contribution.
2020: $19,500 for a Traditional deferral or Roth personal contribution, $37,500 for a profit-sharing/employer contribution.
2021: $19,500 for a Traditional deferral or Roth personal contribution, $38,500 for a profit-sharing/employer contribution.
Can I contribute to both a workplace plan and a Solo 401(k) for my self-employed business at Rocket Dollar?
Yes! You just have to make sure you don't go over the overall contribution limits. You must add up your workplace contributions along with your Solo K contributions so that you don't overclaim any tax-advantaged contributions on your taxes.
If you have an employer match, be sure not to pass up that match in the workplace retirement plan, especially if it is a generous match. An employer match is one of the easiest and surefire ways to accumulate more capital in your retirement accounts.
Then, after you have taken full advantage of the employer match, you can contribute the rest underneath your Solo 401(k) to invest it however you would like to. Remember, your solo K contributions can come from ONLY your Self-Employed Income.