TP is 57 years young and self employed. Will a Solo 401K plan allow TP to exceed the $44,000 limitation contribution for 2006 that is allowed in a SEP-IRA?
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Self employed
is limited to 20% of net SE income after one-half SE tax deduction. See page 13-2 of TTB -
I assume the question is whether or not the elective deferrals are also limited by the $44,000 maximum contribution. The answer is yes. The combination of elective deferrals, plus the employer's contribution is limited to $44,000 for 2006.Comment
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I'm not sure I agree in full.
Catch-up contributions are not allowed in "ordinary" SEPs (they are ok in SAR-SEPs) so I agree fully that $44K is the maximum for a SEP contribution.
However, with a mild vehemence (because I'm not sure I'm correct
) I think because of the availability of catch-up contributions you can do $49K in the Solo 401(k).
IRC §414(v) discusses catch-ups. In particular, §414(v)(3) says the following:
[(3) Treatment of contributions.
In the case of any contribution to a plan under paragraph (1) —
(A) such contribution shall not, with respect to the year in which the contribution is made—
(i) be subject to any otherwise applicable limitation contained in sections ... , 415(c) , and ... or ... ]
IRC §415(c) is where the over all contribution limits are found. So, if I read §414(v)(3) correctly it says the catch-ups are above and beyond the basic overall limit. As I noted above, I cannot argue with great vehemence but I would welcome any thoughts. FWIW, in the December issue of Kiplinger's magazine, it was stated that a 50 or older could do $49K. I know this is NOT authority but ...Comment
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