401k Worksheet for the Self Employed
Unincorporated Businesses
(December 17th, 2009)
How to Calculate Maximum Contribution Limit for 2008
If you are self employed, the illustration below
will help you calculate your retirement plan contribution limits
for the tax year 2008. This information is derived from IRS Publication
560. To get started, make sure you have have your 2008 income tax
forms ready at the table including Form 1040 - US Individual Income
Tax Return and Schedule C.
Step 1 - Compute your self employment tax deduction
using the first table below. Enter this amount on line 2 of the
worksheet.
Step 2 - Calculate your maximum contribution
limits using the information below:
- You can make a salary deferral contribution
of up to 100% of your compensation with a maximum limit of $15,500
for 2008 ($16,500 for 2009).
- If you are 50 years or older, you can contribute
an additional catch up contributions $5,000 for 2008 and $5,500
for 2009.
- The maximum annual deductible contribution
limit for profit sharing is 25% of total salary up to a maximum
of $46,000 for 2008 and $49,000 in 2009. The maximum compensation
on which contributions can be applied on is $230,000 for 2008 and
$245,000 for 2009.
- In the case of self employed businessmen, compensation
means total earned net income.
- The sum of profit sharing and salary deferral
contributions cannot exceed $46,000 for 2008 and $49,000 in 2009.
Step 1 - Compute Self
Employed Federal Income Tax Deduction for 2008
|
| 1.
Net business profits |
$200,000 |
Your Actual |
| 2. Multiply
line 1 by 0.9235 |
$184,700 |
|
| 3. Multiply
line 2 by 0.124; write this figure here or $12,648 for 2008
(whichever is lesser). |
$12,648 |
|
| 4. Multiply
line 2 by 0.029 for Medicare tax |
$5,356.30 |
|
| 5. Add lines
3 and 4 to compute total self employment tax |
$18,004.30 |
|
| 6. Multiply
line 5 by 0.5 to compute your self employment tax deduction |
$9.002.15 |
|
Now let's move on to Step 2
Step 2 - Compute Maximum
Self Employed 401k Contributions for 2008
|
Part
I - Calculated Adjusted Net Business Profits |
|
|
| 1. Net Business
Profits (taken from your Schedule C, C-EZ or K-1) |
$200,000 |
|
| 2. Self Employed
Tax Deduction (See Step 1 above or from IRS Form 1040) |
$9,002.15 |
|
| 3. Adjusted
Net Business Profits (subtract Line 1 - Line 2) |
$190,997.85 |
|
Part
II - Calculate Maximum Salary Deferral |
|
|
| 4. Annual
salary deferral limit ($15,500 for 2008) |
$15,500 |
|
| 5. Maximum
Salary Deferral Limit (Lesser of Line 3 or 4) |
$15,500 |
|
| 6. Adjusted
Net Business Profits after Salary Deferral (subtract Line 5
from Line 3) |
$175,497.85 |
|
Part
III - Calculate Maximum Profit Sharing Contribution |
|
|
| 7. Divide
line 6 by 2 |
$87,748.93 |
|
| 8. Multiply
line 3 by 0.20 |
$38,199.57 |
|
| 9. Subtract
line 5 from $46,000 (for 2008) |
$30,500 |
|
| 10. Maximum
profit sharing contribution (enter lesser of line 7, 8 or 9) |
$30,500 |
|
Part
IV - If Age 50 or Older, Calculate Maximum Annual Catch Up
Salary Deferral |
|
|
| 11. Annual
Catch Up Salary Deferal limit (enter $5,000) |
$5,000 |
|
| 12. Adjusted
Net Business Profits after Salary Deferral & Profit Sharing
Contributions (subtract line 10 from line 6) |
$144,997.85 |
|
| 13. Maximum
Catch Up Salary Deferral Limit (enter lesser of line 11 or 12) |
$5,000 |
|
Part
V - Calculate Maximum Contribution Amount |
|
|
14. Maximum
Contribution amount
a. If you are lesser than 50 years, add lines 5 and 10 ($15,500
+ $30,500) |
$46,000 |
|
| b. If you
are 50 years or over, add lines 5, 10 and 13 ($15,500 + $30,500
+ $5,000) |
$51,000 |
|
As we see from this above table, an individual
who is younger than 50 years will have a total contribution maximum
of $46,000 while an individual who is 50 years or over will have
a total maximum of $51,000.
|
