The solo 401(k) contribution deadline is essential for solo entrepreneurs. This guide will discuss how the solo 401(k) contribution deadline works when it falls and what solo entrepreneurs need to know about solo 401(k)s and their contributions. We’ll also explore some benefits of a solo 401(k).
If you’re a solo entrepreneur or run your own business, this is one date you want to mark on your calendar!
Solo 401(k) Contribution Deadlines For 2022
Employees’ solo 401(k) contribution deadline is December 31, 2022. However, employer profit-sharing contributions are generally accepted until your tax-filing deadline for the tax year.
What is a solo 401(k) plan?
A solo 401(k) is a type of 401(k) for small business employers with no employees.
Solo 401(k) contribution limits
In 2022, the maximum amount you can contribute to a solo 401(k) is $61,000. In 2023, it will be $66,000. There is also a catch-up provision of $6,500 for those aged 50 and above.
Max Contributions
| Contribution Type | 2022 | 2023 |
|---|---|---|
| As Employee | $20,500 | $22,500 |
| Over age 50 | Additional $6,500 | Additional $7,500 |
| As Employer | Up to 25% of Compensation | Up to 25% of Compensation |
| Total Contribution | $61,000 MAX | $66,000 MAX |
Solo 401(k) Contribution Limits For A Spouse
The IRS allows one exception to the no-employees rule. So if your spouse earns income from your business, you can let them be employees and put money into a solo 401(k).
| Contribution Type | 2022 | 2023 |
|---|---|---|
| Spousal Employee | $20,500 | $22,500 |
| Over age 50 | Additional $6,500 | Additional $7,500 |
| The Employer | Up to 25% of Compensation | Up to 25% of Compensation |
| Total Contribution | $61,000 MAX | $66,000 MAX |
Reasons To Contribute To An Annuity Rather Than a Solo 401(k)
Annuities are flexible investment products that can help you achieve your long-term financial goals and provide a source of retirement income in the future. Tax deferral alone is not a sufficient reason to use an annuity in a tax-qualified plan. But income options, death benefit protection, investment selections and services, and flexibility are benefits an annuity can bring to any solo 401(k).
Tax-Deferral
Like a solo 401(k), you won’t pay any taxes on gains from the annuity until you withdraw your money. With that said, you want to set up a non-qualified annuity funded with post-tax money. Then, when you retire, only the interest you earn will be taxed (instead of the entire amount) as you withdraw the income monthly or annually.
Growth potential
You can earn additional interest based on the upward movement of an external market index in both bull and bear markets.
Protection from market downturns
You will not lose money due to market downturns in a fixed annuity or fixed index annuity. If the markets have a down year, you earn zero interest. In exchange for this protection, you are limited on the upside you can get each year, unlike an individual stock through a mutual fund.
A variable annuity will provide unlimited upside potential without protection from volatile market conditions. However, adding a Guaranteed Lifetime Withdrawal Benefit can protect the annuitant from running out of money due to a stock market crash.
Guaranteed retirement income for life
You can choose to annuitize your annuity to receive annuity payments over a period of time or for life or add an optional income rider to generate a paycheck you can never outlive. Sometimes the insurance company will provide a paycheck that increases to help with inflation and the cost of living.
Use our 401(k) calculator to estimate how much guaranteed income an annuity can generate.
Flexibility
In addition to an income for life, waivers of surrender charges are often included to offer accessibility to your retirement plan in case of emergencies like entering a nursing home or terminal illness. In addition, there are no limits on annual contributions to an annuity.
Estate planning
With most fixed-indexed annuities, your beneficiaries are guaranteed to receive your annuity’s Accumulation Value or Minimum Guaranteed Value, whichever is greater.
Contribution match
Like a contribution 401(k) match, some annuities can offer a premium bonus (up to 20%) on rollovers and additional deposits.
Solo 401(K) Vs. Annuity: A Comparison
| Annuity | Solo 401(k) |
|---|---|
| No Contribution Limits | Limited Contributions |
| Insurance or Investment Products | Investment Products |
| Guarantee on Investment | No Guarantee on Investment |
| Tax-Deferred or Tax-Free Growth | Tax-Deferred Growth |
| Pass Down to Beneficiaries | Pass Down to Beneficiaries |
| Spousal Continuance | Spousal Continuance |
| Market Volatility Protection | Could Lose Money |
| Guaranteed lifetime Income | Could Run Out of Money |
Related Reading
- Employer 401k Match: Does it Count Towards Maximum Limit?
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- 401a vs. 401k: What Is The Difference?
- Can You Roll An IRA Into A 401(k)?
- 401(k) Rollover: The Complete Guide (2021)
- 401(k) Calculator
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- How To Invest For Retirement Without Stock Market Risk