How to contribute to solo401k multiple businesses?

[dizzy]

So I have a few things I do for a living at this point: career A (main) career B (side job/former career) side hustle gig C (earlier in year) side hustle gig D (started this summer; plan to continue indefinitely)
They are all self-employed, I get mostly 1099s, occasional cash.

I set up a solo401k for this year for job A which is by far the main part of my earnings.  So far I contributed the $19.5k "employee" max based on career A.  I can still do the 20% profit sharing contribution.

In figuring out my contribution limit do I add all the jobs together, or only career A?  If only career A, can I contribute to separate SEP IRAs or solo401ks for those?  Does that even make sense for someone planning to baristaFIRE by age 45 (6 yrs from now), or is it better off in a taxable brokerage?    I am guessing between PUA and actual work I will be around 50k income.  I also maxed trad IRA and HSA.

[Archipelago]

Hi @dizzy ,

I also have a Solo 401(k) for a side hustle I own and operate as a sole proprietorship. I'm not giving tax advice, just speaking with the way I understand things. I'm also trying to learn how it works, hence I'm trying to learn by researching and explaining in clear terms.

When you set up a Solo 401(k) there are specific documents that are connected to that respective company when that account was established. So my understanding confirms what you've said. Yes, it is connected to a specific business of yours.

Keep in mind that the $19,500 is the annual maximum amount that you can contribute that is tax deductible (pre-tax) and that the total contributions across all 401(k)s for an individual cannot exceed $57,000. The 20% profit sharing is deductible from your business, but it is not treated the same way as a pre-tax contribution. It's more like a business expense that would've been equal for all employees. You're just the only employee.

Potentially useful links:
https://investor.vanguard.com/small-business-retirement-plans/individual-solo-401k
https://www.irs.gov/publications/p560

[Archipelago]

Paging @SeattleCPA and @tj

[dizzy]

@Archipelago yeah that's what I thought, I figured the solo401k, set up for career A, would have to be only "A" career stuff. 

I definitely won't be close to maxing the $56k, my issue is more that I'm trying to qualify for marketplace rather than medicaid. 

Need to have earned enough to push me over (the first time I did the calculation I contributed too much to pretax accounts and I didn't qualify for marketplace plan.  I do like the medicaid plan but after thinking hard TBH I'm not likely to use it much this year, rather have an HSA plan again through marketplace).   I thought about recharacterizing the trad IRA to Roth but it's already up almost $1k since I put the $6k in this summer, and the company I'm using seems like it's going to be a hassle.  Lesson learned for next year.

[tj]

The $19.5k employee contribution limit is the max regardless of how many employers you work for.


Employer contributions would have a separate limit. I'm not about to give an  opinion on a scenario with four activities, some of which may or may not be businesses. You'd have to research the tax law and interpret it for your own situation.


I don't think we should be calling things "side hustles"  that we are wanting to represent as businesses to the IRS.

IRS Pub 334 might address multiple businesses:

https://www.irs.gov/pub/irs-pdf/p334.pdf

[SeattleCPA]

For retirement plan purposes, all your businesses count as a single employer. Which makes sense. Otherwise, employers could game the rules.

[dizzy]

OK, so does that mean just add them up?  I'm a sole proprietor.
I guess I think of them as separate, as they are totally different careers.  Yes, I pay taxes on all of them.  They are all in my name, I don't have any DBAs

[tj]

If you have four Schedule C's, they should all be consolidated on one Schedule SE. Vanguard has the self employed tax calculator that shows how much you can contribute based on business profit, perhaps the other brokerages do too.

[Archipelago]

If you have four Schedule C's, they should all be consolidated on one Schedule SE. Vanguard has the self employed tax calculator that shows how much you can contribute based on business profit, perhaps the other brokerages do too.

Thanks for posting. Hypothetical scenario for you:

If I contribute $10k to a 401(k) through my work provider (W2 job), $9500 to my Solo 401(k), I hit the annual maximum.

Now let's say I claim $60k worth of profit on my Schedule C. Am I able to contribute 20% or $12k to my Solo 401(k) as a deductible business expense? Is that how it works? I'll check out the Vanguard calculator as well.

[tj]

If you have four Schedule C's, they should all be consolidated on one Schedule SE. Vanguard has the self employed tax calculator that shows how much you can contribute based on business profit, perhaps the other brokerages do too.

Thanks for posting. Hypothetical scenario for you:

If I contribute $10k to a 401(k) through my work provider (W2 job), $9500 to my Solo 401(k), I hit the annual maximum.

Now let's say I claim $60k worth of profit on my Schedule C. Am I able to contribute 20% or $12k to my Solo 401(k) as a deductible business expense? Is that how it works? I'll check out the Vanguard calculator as well.

You will have to check the tax code or at least the IRS publications. My understanding was that self employed sole proprietors deduct retirement contributions on Line 15 of the Schedule 1, they are not business expenses.

[SeattleCPA]

If you have four Schedule C's, they should all be consolidated on one Schedule SE. Vanguard has the self employed tax calculator that shows how much you can contribute based on business profit, perhaps the other brokerages do too.

Thanks for posting. Hypothetical scenario for you:

If I contribute $10k to a 401(k) through my work provider (W2 job), $9500 to my Solo 401(k), I hit the annual maximum.

Now let's say I claim $60k worth of profit on my Schedule C. Am I able to contribute 20% or $12k to my Solo 401(k) as a deductible business expense? Is that how it works? I'll check out the Vanguard calculator as well.

Basically, this IS how it works. I would let the tax software calculate for you though...

[seattlecyclone]

If you have four Schedule C's, they should all be consolidated on one Schedule SE. Vanguard has the self employed tax calculator that shows how much you can contribute based on business profit, perhaps the other brokerages do too.

Thanks for posting. Hypothetical scenario for you:

If I contribute $10k to a 401(k) through my work provider (W2 job), $9500 to my Solo 401(k), I hit the annual maximum.

Now let's say I claim $60k worth of profit on my Schedule C. Am I able to contribute 20% or $12k to my Solo 401(k) as a deductible business expense? Is that how it works? I'll check out the Vanguard calculator as well.

Basically, this IS how it works. I would let the tax software calculate for you though...

Yeah the formula is a bit complicated, especially in cases where you make employee-side contributions in addition to employer-side contributions. The IRS has a 21-step worksheet that you can work through manually if you wish.

In this example ($60k profit on Schedule C, $10k of contributions to another employer plan), you'd be able to contribute $20,652: $9,500 as an employee-side contribution (can be either pre-tax or Roth), and $11,152 as an employer-side contribution (must be pre-tax). The employer-side contribution is less than $12k because you have to subtract half your self-employment tax from the $60k Schedule C profit before applying the 20% limit. Also in the formula there are some situations where the amount of employee-side contribution you choose to make can affect your maximum employer-side contribution. This example doesn't seem to be one of those situations.

[Archipelago]

If you have four Schedule C's, they should all be consolidated on one Schedule SE. Vanguard has the self employed tax calculator that shows how much you can contribute based on business profit, perhaps the other brokerages do too.

Thanks for posting. Hypothetical scenario for you:

If I contribute $10k to a 401(k) through my work provider (W2 job), $9500 to my Solo 401(k), I hit the annual maximum.

Now let's say I claim $60k worth of profit on my Schedule C. Am I able to contribute 20% or $12k to my Solo 401(k) as a deductible business expense? Is that how it works? I'll check out the Vanguard calculator as well.

Basically, this IS how it works. I would let the tax software calculate for you though...

If you have four Schedule C's, they should all be consolidated on one Schedule SE. Vanguard has the self employed tax calculator that shows how much you can contribute based on business profit, perhaps the other brokerages do too.

Thanks for posting. Hypothetical scenario for you:

If I contribute $10k to a 401(k) through my work provider (W2 job), $9500 to my Solo 401(k), I hit the annual maximum.

Now let's say I claim $60k worth of profit on my Schedule C. Am I able to contribute 20% or $12k to my Solo 401(k) as a deductible business expense? Is that how it works? I'll check out the Vanguard calculator as well.

Basically, this IS how it works. I would let the tax software calculate for you though...

Yeah the formula is a bit complicated, especially in cases where you make employee-side contributions in addition to employer-side contributions. The IRS has a 21-step worksheet that you can work through manually if you wish.

In this example ($60k profit on Schedule C, $10k of contributions to another employer plan), you'd be able to contribute $20,652: $9,500 as an employee-side contribution (can be either pre-tax or Roth), and $11,152 as an employer-side contribution (must be pre-tax). The employer-side contribution is less than $12k because you have to subtract half your self-employment tax from the $60k Schedule C profit before applying the 20% limit. Also in the formula there are some situations where the amount of employee-side contribution you choose to make can affect your maximum employer-side contribution. This example doesn't seem to be one of those situations.

Thank you for the responses. I'll be sure to run the scenario through tax software, too.

[dizzy]

So confused.  So I'm using turbotax home/biz.  This has always worked well for me.  Last year I had a SEP IRA (missed deadline for solo401k account opening) and it calculated my numbers no problem. 

Right now it's saying my biz A profit is $24000, biz B $2500 biz C and D each $1k.
When I hit the "calculate max contribution" button it always says I can only do a max of $19k.  Huh?  I thought the 2020 limit just for self was $19.5k.  And that doesn't include the owner contribution.
When I manually enter in $19.5k and then the 20% from one of various internet calculators (just for job A), it actually makes my taxes owed go up.

Anyone encounter something like this?