Will Solo 401k Limits Increase In 2024?
Some people pay close attention to everything that happens in politics, but not everyone. While some people just like to be informed, others will go into these sorts of things looking for ammunition against someone else. Then, there’s also the people who just occasionally hear word that things might be changing. Word on the wind says that contributions to retirement plans are going to be increasing for 2024, but does that also include Solo 401(k) plans?
Author
Josh Cruz
May 5, 2023
Some people pay close attention to everything that happens in politics, but not everyone. While some people just like to be informed, others will go into these sorts of things looking for ammunition against someone else. Then, there’s also the people who just occasionally hear word that things might be changing. Word on the wind says that contributions to retirement plans are going to be increasing for 2024, but does that also include Solo 401(k) plans?
Due to SECURE Act 2.0, Solo 401(k) limits will be increased in 2024. This is both for catch-up and general contributions. However, certain contributions will have to be to Roth accounts.
This bill means a lot of good things are in store for Americans trying to save for retirement.
What are Catch-Up Contributions?
Catch-up contributions are there as a way for someone who hasn’t started to save for retirement or want to put more money into their retirement plan. This additional contribution is only available for someone who is aged50 years old or older. The contribution is above and beyond the regular annual limit.
With SECURE Act 2.0 signed into law by President Biden in December of 2022, these contribution limits may be increased even further. The increases are called Cost Of Living Adjustments also known as COLAs.
What is a Roth IRA?
A Roth account is a type of individual retirement account where contributions are not tax deductible. This means that contributions are taxed in the year of contribution. It may also mean that there will be less money put into it initially, but it will grow tax-deferred but may eventually be completely tax-free from then on. In a traditional IRA, the funds are not taxed until the money is withdrawn.
For employer plans either a standard 401(k) or a Solo 401(k), the same concept applies to pre-tax deferrals. Pre-tax deferrals reduce the individual’s taxable income for the year and taxation happens when the money is withdrawn from the account.
That means that there is more money now to put in, and a little less later. With a 401(k) Designated Roth account, money is taxed when it is put into the account and hopefully never again. Both have their perks and drawbacks, so be sure to discuss your individual needs and savings goals with a qualified expert.
Do Solo 401(k) Plans have a Roth Option?
Solo 401(k) plans can be Roth or traditional, just like a standard 401(k) plan from an employer. These plans, just like their standard counterparts, are not taxed while money is inside of them. A Roth Solo 401(k) is similar to a regular Roth 401(k), but follows the rules of a Solo 401(k), such as being for a self-employed individual or a business with no full-time rank-and-file employees.
Are These Changes Going to be Automatic?
There’s always the fear when something changes at a higher level that it means more work for those down the line. Sometimes that’s true, but when it comes to this new SECURE Act 2.0, changes are going to be automatic. There are additional automatic changes when it comes to traditional 401(k) plans too, as well as for older people and retirees.
For example, currently distributions must start being paid out once the owner of the plan is 72 years old. Under this new bill, the new age is 73 for 2023. Eventually it will rise to 75 in 2032.
Does the SECURE Act 2.0 have Any Other Changes to Solo 401(k) Plans?
There are not only changes to the contribution limits for 401(k) plans under the SECURE Act 2.0 bill. For those with a Solo 401(k) plan, or those setting one up, the deadline is no longer December 31st for a calendar plan. Instead, this has been extended to the employer’s tax return due date plus extensions.
This also means that Solo 401(k) plans can be opened past the end of the calendar year they’re contributing towards, as long as they’re opened before the employer’s tax deadline including extensions!
Additionally, this also extends how long both “employer” and “employee” contributions can be made for sole proprietors, instead of just the “employer” contributions.
Conclusion
There are going to be some big changes to contribution limits to a Solo 401(k) in 2024 thanks to the SECURE Act 2.0 bill. Contribution limits and deadlines are going to be increasing across the board. Not only that, but the age where minimum distributions are required to be made is going to be increasing over the next handful of years.
Keep track of all of this with the help of SEPira(k). With their expert guidance and state-of-the-art secure platform, managing your Solo 401(k) is a breeze. While others will make their clients manage themselves with just some Excel spreadsheets and the IRS breathing down their necks, SEPira(k) does most of the work themselves while still allowing their clients self-direction. That, coupled with the new deadline for setting up a plan, makes them the clear choice for recordkeeping and managing your Solo 401(k) retirement plan.
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