Harvard Law Attorney George Blower leads an in-depth discussion of the 2023 and 2024 Self-Directed Solo 401k Annual Contribution Limits and Types PLUS learn how opening a Solo 401k in 2023 will qualify you to claim a $1500 tax credit including a $500 credit on your 2024 taxes and then another 2 years after that for a total of $1500.

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The solo 401k plan, commonly referred to as self-directed Solo 41k is the retirement plan of choice for self-employed individuals or owner-only businesses including for the features highlighted below:

-The highest contribution limits for any defined contribution plan including up to $69,000 (or even $76,500 if you are 50 or older) for 2024.

-The ability to make pre-tax, Roth, and even Mega Backdoor Roth contributions.

-401k participant loans of up to $50,000

-Invest with checkbook control in real estate, cryptocurrencies, notes, private placements, and other types of alternative investments.

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For over 10 years, My Solo 401k Financial is the leading self-directed solo 401k provider having helped over 8,000 clients take control over their retirement funds by focusing on superior knowledge, expertise, and customer service with over 100+ 5-star verified customer reviews on the Better Business Bureau (BBB)….(read more)

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If you’re a self-employed individual or a small business owner, the Solo 401(k) may be a great retirement savings option for you. Not only does it offer generous contribution limits, but it also gives you the flexibility to direct your own investments. As you plan for your retirement savings, it’s essential to understand the annual contribution limits and types for the Solo 401(k).

As of 2023 and 2024, the annual contribution limits for the Solo 401(k) remain the same as in previous years. Individuals under the age of 50 can contribute up to $19,500 as an elective deferral, while those 50 and older can make an additional catch-up contribution of $6,500, bringing their total contribution to $26,000. In addition to the elective deferral, self-employed individuals can contribute up to 25% of their compensation as an employer profit-sharing contribution, with a combined maximum contribution of $61,000 for those under 50 and $67,500 for those 50 and older.

There are two types of contributions that can be made to a Solo 401(k) – elective deferrals and employer contributions. Elective deferrals are made by the employee, allowing them to contribute a portion of their compensation to the retirement plan on a pre-tax basis. This reduces their taxable income for the year and allows their contributions to grow tax-deferred until they are withdrawn in retirement.

Employer contributions, on the other hand, are made by the business on behalf of the self-employed individual. This type of contribution is based on a percentage of the individual’s compensation and is also made on a pre-tax basis. Employer contributions can be particularly beneficial for self-employed individuals with fluctuating incomes, as they can contribute up to 25% of their compensation each year.

The ability to make both elective deferrals and employer contributions to a Solo 401(k) allows self-employed individuals to maximize their retirement savings potential. It’s important to note that the combined total of these contributions cannot exceed the annual contribution limits set by the IRS.

In addition to the contribution limits, it’s important to be aware of the types of investments allowed within a Solo 401(k). Unlike traditional 401(k) plans offered by large employers, Solo 401(k) plans typically allow for a wider range of investment options, including stocks, bonds, mutual funds, ETFs, real estate, and even alternative assets such as precious metals and cryptocurrencies. This level of flexibility gives individuals the opportunity to create a diversified retirement portfolio that aligns with their risk tolerance and investment goals.

As you consider your retirement savings options for 2023 and 2024, take the time to evaluate the benefits of a Solo 401(k). With its high contribution limits and investment flexibility, it can be an excellent choice for self-employed individuals and small business owners looking to build a secure financial future. Be sure to consult with a financial advisor or tax professional to ensure that you are taking full advantage of this retirement savings vehicle while remaining compliant with IRS regulations.