If you were late in starting to save for your retirement, catch-up contributions exist to let you “catch up” by giving you slightly higher contribution limits each year. If you’re 50 years of age or older, you’re allowed to contribute more money into your solo 401k than is typically allowed.
This is also helpful due to the fact that most people are in higher tax brackets in the later stages of their careers. By having a higher contribution limit, you can deduct a larger amount of taxable income, allowing you to pay less taxes.
What is the catch-up contribution amount for a solo 401k?
In 2022, you’re allowed to contribute $6,500 more into your solo 401k.
The solo 401k has a contribution limit of $61,000 for 2022. With catch-up contributions applied, you can contribute up to $67,500.
In 2023, you’re allowed to contribute $7,500 more into your solo 401k.
The solo 401k has a contribution limit of $66,000 for 2023. With catch-up contributions applied, you can contribute up to $73,500.
Who’s eligible for catch-up contributions?
Anyone who is 50 years of age is eligible for catch-up contributions to a solo 401k. As long as you will be at least 50 years old by December 31 of the year you contribute, you qualify.
In order for catch-up contributions to be applied, you must max out your employee contribution limit, which is $20,500 for 2022 (explained below).
How do I make catch-up contributions?
With a solo 401k, you’re allowed to contribute as both the employee and employer, and each side has its own limits and rules on how you can contribute.
- As an employee you can contribute up to $22,500 in 2023.
- As an employer you can contribute up to 25% of your compensation if your business is incorporated and approximately 20% of compensation if your business is not incorporated.
Employee and employer contributions must not exceed the total yearly solo 401k contribution limit of $66,000 for 2023.
Now here’s where catch-up contributions come in.
The catch-up contribution can only be applied to the employee side of contributions.
In other words, in order for your catch-up contributions to be applied, you must first max out your employee contributions first, which is $22,500 for 2023. Only then can you make the additional contribution of up to $7,500 as a catch-up.
Can catch-up contributions go towards a Roth solo 401k?
Yes, catch-up contributions can either go into a pre-tax solo 401k account or a post-tax (Roth) solo 401k account.
What if all my original employee contributions were made as pre-tax? Can I still contribute my catch-ups to a Roth solo 401k?
Yes, there are no restrictions on which account you contribute to. It’s your decision. A pre-tax contribution will give you a tax deduction for the year, but you’ll have to pay income taxes when you withdraw in retirement. A Roth contribution will require that you pay income taxes on your contribution now, but withdrawals in retirement will be tax-free.
Where is the option to make catch-up contributions in my account?
Most solo 401k plan providers will increase your contribution room automatically. You won’t have to do anything to “activate” your catch-up contributions on your end. If you’re over the age of 50, but you don’t see any option to make catch-up contributions, simply inform your plan provider and they should be able to get you sorted out.
When is the deadline to apply catch-up contributions to my solo 401k?
The deadline to apply catch-up contributions to your solo 401k is the same as the solo 401k contribution deadline.
- You have until December 31, 2023 to open your solo 401k (if you don’t have one already) and file your election. Filing your election is simply stating to the IRS how much you will contribute to your solo 401k and which accounts you will be contributing to (pre-tax or Roth). You don’t need to actually deposit your contribution just yet.
- If you operate your business as a sole proprietorship, LLC taxed as a sole proprietorship, or C corporation, you have until the federal tax filing deadline to make your contribution. The federal tax filing deadline for the 2023 tax year is April 15, 2024.
- If you operate your business as an S corporation, partnership, or multi-member LLC, you have until March 15, 2024 to make your contribution.
- You can file for an extension, which would give you an additional six months to make your contribution.
Do other retirement plans also have catch-up contributions?
Yes, catch-up contributions aren’t unique to the solo 401k. A traditional 401k that you might receive from your employer also works the exact same way as solo 401k catch-up contributions. Both have catch-up contributions of $6,500 for 2022 and $7,500 for 2023. The only difference between them is that you can’t make contributions as an employer to a regular 401k.
An IRA (both traditional and Roth), 403b, SIMPLE IRA, and 457 also have catch-up contributions. However, an IRA only allows an additional $1,000 in catch-up contributions and a SIMPLE IRA only allows $3,000.