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How to Calculate Self-Directed Solo 401(k) Contribution Amounts

The Self-Directed Solo 401(k) allows for pretax contributions to be made two different ways: Salary Deferral and Profit-Sharing. Here is the 2020 contribution limit breakdown for each and how they are calculated.



Salary Deferral - With salary deferral, the account holder can contribute:

- 100% of net earnings from self-employment up to a maximum of $19,500.

- Those who are 50 years old or older qualify for the additional catch-up contribution of $6,500, bringing the salary deferral limit to $26,000.

Profit-Sharing - In addition to salary deferral, the account holder can also make a profit-sharing contribution:

- For those set up as an LLC, Partnership or Sole Proprietor, they can contribute up to 20 percent of their net earnings (**calculation below) from self-employment.

- Those set up as C-Corporations and S-Corporations can contribute up to 25 percent of their salary from self-employment.

Combined Limit - The contribution limit for the salary deferral and profit sharing, combined, cannot exceed $57,000 for those under 50 years old or $63,500 for those 50 years old and over. Again, this is the maximum amount allowed; the account holder doesn’t have to contribute the full amount.

Here are a few examples:


Example 1 – Stone is 40 years old, has an LLC and will make $100,000 in net earnings (after deductions and less ½ self-employment tax) from his one-person business in 2020.

Salary deferral calculation: 100 percent of net earnings ($100,000) not to exceed the $19,500 limit

Salary deferral amount: $19,500

Profit-sharing calculation: $100,000 * 20% (but not to exceed $57,000)

Profit-sharing amount: $20,000

Combined contribution calculation: $19,500 + $20,000 (but not to exceed $57,000) =

Combined contribution amount allowed: $39,500

*If Stone is 50 or over, add $6,500 to the salary deferral amount and overall contribution limit.

*If Stone’s company is taxed as an S-corp or C-corp, multiply $100,000 by 25%.


Example 2 – Stone is 40 years old, has an LLC and will make $300,000 in net earnings (after deductions and less ½ self-employment tax) from his one-person business in 2020.

Salary deferral calculation: 100 percent of net earnings ($300,000) not to exceed the $19,500 limit

Salary deferral amount: $19,500

Profit-sharing calculation: $300,000 * 20% (not to exceed $57,000)

Profit-sharing amount: $57,000

Combined contribution calculation: either $57,000 from profit-sharing only, or $19,500 salary deferral + $37,500 profit-sharing =

Combined contribution amount allowed: $57,000

*If Stone is 50 or over, add $6,500 to the salary deferral amount which makes the overall contribution limit $63,500.

*If Stone’s company is taxed as an S-corp or C-corp, multiply $300,000 by 25%, but the profit-sharing will still be capped at $57,000.


Example 3 – Stone is 40 years old, has an LLC and will make $15,000 in net earnings (after deductions and less ½ self-employment tax) from his one-person business in 2020.

Salary deferral calculation: 100 percent of net earnings ($15,000) not to exceed the $19,500 limit

Salary deferral amount: $15,000

Profit-sharing calculation: $15,000 * 20% (not to exceed $57,000)

Profit-sharing amount: $3,000

Combined contribution calculation: either $15,000 from salary deferral only, or $3,000 profit-sharing + $12,000 salary deferral =

Combined contribution amount allowed: $15,000 since Stone will be capped by the net earnings amount. He cannot contribute money that hasn’t been earned from self-employment.

*If Stone is 50 or over, the catch-up contribution cannot be added to the salary deferral amount because he is capped by his net earnings amount.

*If Stone’s company is taxed as an S-corp or C-corp, multiply $15,000 by 25%.


Additional Resources:


Please refer to our online calculator for assistance estimating the maximum contribution amount.

** Net earnings should be determined as follows:

Net profit (line 31 Schedule C)

Less: Deduction for one-half of self-employment tax (Line 6 on Schedule SE or Line 14 on Schedule 1)

Equals: Net earnings from self-employment

Additional information can be found in Publication 560 (2019), Retirement Plans for Small Business in this section: Rate Table for Self-Employed. Keep in mind, the contribution amounts listed in this publication represent 2019 limits.

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Nashional Self-Directed does not offer tax, accounting, legal or investment advice. Please consult with the appropriately licensed or certified processional if these services are needed. The content provided on this website is for informational purposes only. Pricing is subject to change at any time.