I am a full time employee and contributed $15,000 to an employer sponsored 401(k) in 2006. I also have a home business with a net profit of 9440.00 in 2006. I would like to place as much of my home business profit into my self employed 401(k) as possible. Can anyone get me started down the right path for the calculation? Thanks!
As I recall, Fidelity (among others) has a self-employed
401(k) contribution worksheet. However, the short version is that: (a) the deferral component of contribution is aggregated across ALL 401(k)s you participate in. Since you deferred the full $15K at your day job, you can't make any more deferral contributions. (b) however, the profit-sharing component of contribution is per-employer. So regardless of what match (if any) your day job employer gave you, you can still make a profit-sharing contribution into your self-employed 401(k). Assuming you're a sole proprietor, your max contribution will be 20%[*] of (net profit minus 1/2 of SE tax).Since $9440 of profit results in $1334 of SE tax, one half of that is $667, so your max contribution will be
0.20 * ($9440 - $667) = $1755. [*] Yes, the publications say 25% of adjusted net profit, but for a sole prop., the contribution itself has to be deducted from the amount you take the 25% of. When you solve the recursion that requirement creates, it turns out to transform the 25% into 20%.-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us
Excellent. Thanks Rich!
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.