Since a business owner is both an employee and employer of his or her company, contributions can be made to the 401(k) plan in both capacities.
For the employee portion, the maximum contribution for 2018 is $18,500. If aged 50 or over, the maximum is $24,500.
For the employer portion, the business owner can contribute up to 25% of the business owner’s salary. This salary must be W-2 income that you receive from your company. Dividend or net profit income that goes on your K-1 does not qualify.
For example, assume an S corporation business owner under 50 has $60,000 of W-2 earnings in 2018. The maximum contribution to this business owner’s solo 401(k) would be: $18,500 + (25% x $60,000) = $33,500.
The 2018 Solo 401k contribution limit is $55,000 (or $61,000 if aged 50 or older).
