- Self-employment income
- This is your annual income from self-employment. Your maximum
contribution is based on your self-employment income; do not
include any income you may receive from other sources.
- Annual contribution
- The amount you will contribute to your Individual 401(k) each
year. All contributions are assumed to happen at the beginning of
the year.
- Maximum annual contribution
- This is the maximum amount you are allowed to contribute to
your Individual 401(k) account per year. In 2011, the maximum
contribution to an Individual 401(k) is $49,000 (no change from
2010) for individuals under 50, and $54,500 for those 50 and over.
Self-employment income of $162,500 or more is required to qualify
for the maximum contribution in 2011.
If you earn less than $162,500 in 2011, your maximum is
calculated as follows: First, as the employee, you are able to
contribute up to $16,500 in 2011 to your Individual 401(k) or 100%
of your self-employment income, whichever is less. For individuals
age 50 or over, an additional $5,500 catch-up contribution
increases this portion of your contribution to $22,000, but still
limited to no more than 100% of your earned income. Second, you are
allowed employer contributions - even though self-employed people
are fact their own employee. Employer contributions, for the
self-employed, are limited to an additional 25% of adjusted net
business profits, up to the maximum total amount allowed per
year.
As an example, consider a 25-year-old self-employed person with
an net income of $40,000 per year. They would be able to
contribute:
- $16,500 as an employee contribution
- $7,434 as an employer contriubution*
*This is 25% of adjusted net income
$29,739. Adjusted net income is calculated as net business income
of $40,000 - deduction for Self-Employment Tax of $2,826 divided by
1.25.
- $23,934 Maximum contribution for 2011
It is important to note that you may be subject to additional
contribution limitations if you participate in an additional
retirement program through another employer. For 2011, total
retirement plan contributions are limited to $49,000 or 100% of
your total compensation for the year ($54,500 if age 50 or older).
This includes contributions to your Individual 401(k) as well as
any other employer plan. It also includes profit matching and
employer contributions. Contributions to a Traditional IRA or Roth
IRA are not included in this limit. Catch-up contributions for
individuals over 50 are also not included in this limit.
Current age- Your current age.
- Age of retirement
- Age you wish to retire. This calculator assumes that the year
you retire, you do not make any contributions to your Individual
401(k). So if you retire at age 65, your last contribution happened
when you were actually 64.
- Current Individual 401(k) balance
- The starting balance or current amount you have invested or
saved in your Individual 401(k).
- Annual rate of return
- The annual rate of return for your Individual 401(k) account.
This calculator assumes that your return is compounded annually and
your deposits are made monthly. The actual rate of return is
largely dependent on the type of investments you select. For
example, from December 2000 to December 2010, the annual compounded
rate of return for the S&P 500 was 0.899%, including
reinvestment of dividends. From January 1970 to December 2010, the
average annual compounded rate of return for the S&P 500,
including reinvestment of dividends, was approximately 10.05%
(source: www.standardandpoors.com). Since 1970, the highest
12-month return was 61% (June 1982 through June 1983). The lowest
12-month return was -43% (March 2008 to March 2009). Savings
accounts at a bank may pay as little as 1% or less but carry
significantly lower risk of loss of principal balances.
It is important to remember that these scenarios are
hypothetical and that future rates of return can't be predicted
with certainty and that investments that pay higher rates of return
are generally subject to higher risk and volatility. The actual
rate of return on investments can vary widely over time, especially
for long-term investments. This includes the potential loss of
principal on your investment. It is not possible to invest directly
in an index and the compounded rate of return noted above does not
reflect sales charges and other fees that funds and/or investment
companies may charge.
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