In 2021 and 2022, the solo 401(k) contribution limit will be $58,000 and $61,000, respectively. The catch-up contribution is $6,500 for those 50 and older.
If you want to understand solo 401(k) contribution rules, you need to think of yourself as two different people: an employer (of yourself) and an employee (also of yourself). Within the overall contribution limits of $58,000 in 2021 and $61,000 in 2022, each role has its own contribution limits:
Employees can contribute up to $19,500 in 2021 and $20,500 in 2022, or 100% of their compensation, whichever is less. Those 50 and older can contribute an additional $6,500 here.
Profit-sharing contributions may be made by the employer at a maximum of 25% of your compensation or your net self-employment income, which is your net profit less than half your self-employment tax and the contributions you made. The maximum compensation that can be used to calculate your contribution is $290,000 in 2021 and $305,000 in 2022.
If you're side-hustling, keep in mind that 401(k) limits are determined by the individual, not the plan. Therefore, if you also participate in a 401(k) at your day job, the limit applies to all plans, not just to the one you participate in.
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