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Question about mixed W2 and 1099 income and profit sharing

For the first half of 2007, I was working as a full time W2 employee at a company, and was laid off towards the middle of the year. By that time, I had already contributed close to my limit of $15000 employee contribution towards my employer's 401k plan.

After my lay-off, I started working as a 1099 contractor working for several clients. My question is: Can I contribute a part of my 1099 income as profit sharing to a solo 401k (which I had already setup in late 2007), and how much can I contribute. I have heard that usually one can contribute 25% of gross income minus cost of goods sold (which in case computer consulting would be nil) upto a maximum of $43000. Because I have already maxed out my $15000 employee contribution, am I still eligible to contribute a maximum of (43000-15000 = 28000) as profit sharing of my 1099 income towards my solo 401k?

Reply to
John Bliss
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"John Bliss" wrote

You're thinking 25% of ~net profit~ (after all expenses).

For a solo-401K it's up-to 100% (although it caps out at $42K I believe).

Clearly there's room to make some contributions. Talk to your financial advisor who is familiar with what's available along this line, and how it interacts (if at all) with your former plan.

Reply to
Paul Thomas, CPA

That's not true of the profit-sharing part of a solo-401k. That's limited to 25% of net profit (which for a sole prop is actually 20% of net profit, because the profit-sharing

401k contribution itself reduces net profit).

The OP also said he had maxed out his salary deferral (which unlike the profit sharing part is integrated across all 401(k) plans the person participates in), so he can only make a profit-sharing contribution to his solo-401k.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

Reply to
Rich Carreiro

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