Self-Employed Individual - Solo 401K Plan
“The increased elective deferral contribution for 2012, will make the solo 401(k) plan even more popular amongst the self-employed,” stated Adam Bergman, a tax attorney with IRA Financial Group.
Miami, FL (PRWEB) November 11, 2011
On November 8, 2011, the Internal Revenue Service (“IRS”) announced in IR-2011-103 the cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for Tax Year 2012. In general, many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. With respect to the solo 401K plan, the elective deferral contribution for 2012 will be increased from $16,500 to $17,000. This increased elective deferral contribution limitation will apply to all employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan. In addition, the catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.
“The increased elective deferral contribution for 2012, will make the solo 401(k) plan even more popular amongst the self-employed,” stated Adam Bergman, a tax attorney with IRA Financial Group. “The significance of the elective deferral contribution increase is that participants of a solo 401(k) plan will be able to defer annually up to $49,500 if they are under 50 and $55,000 if they are over 50,” stated Mr. Bergman.
One of the major advantages of using a solo 401K retirement plan over an IRA is the high contributions that one can make on an annual basis. Unlike an IRA, a solo 401k plan allows a plan participant to make high annual contributions to the Plan. The contributions can be in the form of pre-tax or Roth type contributions (after-tax).
The annual solo 401k contribution consists of two components, an employee salary deferral contribution and an employer profit sharing contribution. In 2012 the total contribution limit for a solo 401k Plan participant would be $49,500 or $55,000 if age 50 or older. The total allowable contribution limits are combined to get the maximum Solo 401k contribution limit.
With respect to the employee deferral component, a solo 401K Plan participant can contribute up to $17,000 per year to the plan. In addition, an additional “catch-up” contribution of $5,500 can be contributed for persons over age 50. Thus, an individual under the age of 50 can make an annual employee deferral of up to $16,500, whereas, an individual over the age of 50 can make an annual employee deferral of up to $22,500.
With respect to the employer profit sharing contribution component, the employer – not the individual – is permitted to make a tax-deductible contribution on behalf of the employee equal to an amount up to 25% of the participant's self- employment compensation. Note – the percentage is actually 20% in the case of a solo proprietorship and a single member LLC once the tax return calculations are complete.
The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP.
IRA Financial Group is the market's leading “checkbook control Self Directed IRA Facilitator. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.
To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.
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