- 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 2009, the maximum
contribution to an Individual 401(k) is $49,000 (an increase of
$2,000 over 2008) 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 2009.
If you earn less than $162,500 in 2009, your maximum is
calculated as follows: First, as the employee, you are able to
contribute up to $16,500 in 2009 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 2009
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 2009, 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. From
January 1970 to December 2008, the average annual compounded rate
of return for the S&P 500, including reinvestment of dividends,
was approximately 9.7% (source: www.standardandpoors.com). During
this period, the highest 12-month return was 61%, from June 1982
through June 1983. The lowest 12-month return was -39%, which
happened twice, once from September 1973 to September 1974 and
again from November 2007 to November 2008. 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 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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