Fete Lifestyle Magazine March 2024 - Men's Issue | Page 32

2. Solo 401(k)

Best for: A business owner or self-employed person with no employees (except a spouse, if applicable).

Contribution limit: For 2024, it's $69,000, plus a $7,500 catch-up contribution or 100% of earned income, whichever is less.

To help understand the contribution limits here, it helps to pretend you’re two people:

An employer (of yourself) and an employee (also of yourself).

•In your capacity as the employee, you can contribute as you would to a standard employer-offered 401(k), with salary deferrals in 2024 of up to 100% of your compensation or $23,000, plus that $7,500 catch-up contribution, if eligible, whichever is less.

•In your capacity as the employer, you can make an additional contribution of up to 25% of the compensation. Employer contributions must be made by the tax filing deadline, or extension date if applicable.

•There is a special rule for sole proprietors and single-member LLCs: You can contribute 25% of net self-employment income, which is your net profit less half your self-employment tax and the plan contributions you made for yourself.

•The limit on compensation that can be used to factor in your contribution is $345,000 in 2024.

Tax advantage: This plan works just like a standard, employer-offered 401(k): You make contributions pretax, and distributions after age 59½ are taxed.

Employee element: You can’t contribute to a solo 401(k) if you have employees. But you can hire your spouse so they can also contribute to the plan. Your spouse can contribute up to the standard employee 401(k) contribution limit, plus you can add in the employer contributions, for up to a total of $69,000 in 2024, plus catch-up contribution, if eligible. This potentially doubles what you can save as a couple.

3. SEP IRA

Best for: Self-employed people or small-business owners with no or few employees.

Contribution limit: The lesser of $66,000 in 2023, $69,000 in 2024, or up to 25% of compensation or net self-employment earnings, with a $330,000 limit on compensation ($345,000 in 2024) that can be used to factor the contribution.