SOLE PROPRIETOR: Calculating My Solo 401k contributions for a Sole Proprietor

Sole Proprietor Solo 401(k) Calculation
Once the net profits have been calculated on the Schedule C, and the SE tax figures have been determined (or estimated in the case of advance planning), the maximum Solo 401(k )contribution may be determined as follows.

Step 1: Determine compensation

a. net profits - 1/2 SE tax = pre-profit sharing deduction compensation

b. pre-profit sharing deduction compensation          = compensation
     1 + contribution rate expressed as a decimal
                            (.25 is the maximum)

Step 2: Determine maximum profit sharing contribution
            maximum profit sharing contribution = .25 x compensation

Step 3: Determine maximum salary deferral
         maximum salary deferral = lesser of $16,500, or
                                                  compensation-maximum profit sharing contribution

Step 4: Calculate maximum Solo 401(k) contribution
            maximum Solo 401k contribution = maximum profit sharing contribution
                                                                      + maximum salary deferral

NOTE: The maximum Solo 401k contribution for 2011 may not exceed $49,000 (unless your age 50 or older and therefore qualify for an additional $5,500 of catch-up contributions)