Elective Deferral Contributions

There are two primary “buckets” of contributions that may be made from your self-employment activities: Pre-Tax (and/or Roth) Elective Deferrals and Business Profit Sharing contributions. Your plan documents with PGI will allow you to make either pre-tax and/or Roth elective deferrals. But, keep in mind, that Roth deferrals must be kept separate from all other funds within the plan…in short, in a separate account (whether the plan’s account is at a bank or brokerage firm) from other funds within the plan.

Whether you are a sole proprietorship, LLC or an incorporated entity, you are entitled to make elective deferral contributions to your plan, based on qualifying income. How you calculate the elective deferrals will vary slightly between a sole proprietorship and an incorporated entity, but 2019 elective deferral limits are $19,000 under the age of 50 and $25,000 over the age of 50. Elective deferrals are tied to the individual, so regardless of how many 401(k) plans a participant may participate in, they have one Elective Deferral limit. I like to explain the Elective Deferral contributions are tied to your ankle like a weight…they follow you regardless.

Contributions Outside of Elective Deferrals?

Yes, an employer may make matching contributions and profit-sharing contributions (typical with a Solo-K), and an employee, if the plan permits, can make after-tax contributions.