Question on multiple retirement accounts (mixing regular and self employment)

[seriousnow]

I regularly contribute to my ROTH IRA and max out my 401k.  My side business (c corp) is starting to make some money and I need to figure out the best way for me to defer or minimize taxes now.

Can I do a SEP IRA or solo 401k or something through my side business in addition to my regular contributions?  If so, I need to do it for all the employees right?  Or is that rule only if the company is matching funds?  Anyone able to break this down for me? 

Issuing dividends, increasing other extras and expenses to minimize salary.  Would love to hear from anyone who has navigated this.  There seem to be so many opportunities to make mistakes.  I don't want to be more conservative than necessary, but I definitely want everything to be on the up and up.  Also want to make sure I am taking advantage of every possible benefit.

Thanks!

[forummm]

Yes, you can do a solo 401k for your side business. But you can only contribute the employer contributions if you are maxing out your 401k at your other job.

[WorkingToBeFIREd]

I ended up going with Fidelity for my self-employed 401k.  I was originally planning on Vanguard, but there were two limiting factors - first, you can't do a reverse rollover from an IRA back into the 401k (which would nuke my ability to do backdoor Roth conversions if I couldn't shed the IRA) and, second, they only have Investor-class shares available versus Admiral.  Fidelity was a "yes" to both, so it worked better for me.  Both options are free and have low cost index funds, so you probably can't go wrong either way unless you have specific requirements like I did.

Pre-FIRE, when I was still contributing to my former employer's 401k, I could only do the employer contributions for the side hustle (as forummm mentioned).  I'm now taxed as an S-Corp and can do 25% of the salary, I pay myself.  It's a little lower overall contribution since I keep my salary reasonable to minimize tax, but still more than the average wage slave can contribute.

Bear in mind - as soon as you have any employees other than yourself or your spouse, you can no longer use a self-employed 401k and will need to either shut it down and/or migrate to another product (SEP IRA, SIMPLE, etc.).  A full 401k plan with a third-party administrator (which you'd need if you have employees) will have a cost per year....I've heard anywhere between $1,500-3,000, but haven't researched options.  If you do employer profit-sharing, you would need to do the same amount for all employees as well.  Basically, if you can avoid employees, do so!  :)

Hope this helps...

[seriousnow]

Per forummm if I started a solo 401k I could only contribute employer contributions because I already maxed employee contributions at my other job.

I've seen that is the case with nearly all the corporate retirement plans.

Is there a different vehicle that isn't limited by my contributions under my other 401k?  Right now my company isn't profitable so employer contributions aren't happening.

What about the simple Ira?  Is it hard or expensive to open?

Thanks for helping me understand my options! 

[seattlecyclone]

I think the 401(k) may be your best bet. This IRS page lists the different types of plans you can establish as a self-employed person.

• A SEP plan lets you put in 25% of your net earnings from self employment, up to a maximum of $53,000.
• A 401(k) plan lets you put in $18k of salary deferrals (limit shared with plans from other jobs), plus 25% of your net earnings from self employment, up to a maximum of $53,000.
• A SIMPLE IRA plan lets you put in $12.5k of salary deferrals (limit shared with plans from other jobs), plus a 2-3% match.
• Profit sharing and money purchase plans are mentioned in less detail, but they also seem limited to 25% of your net earnings from self employment.
• A defined benefit plan is also an option, but this Schwab FAQ seems to indicate that it doesn't start to pay off from a tax perspective unless you're earning over $250k from your business and you're starting the plan no more than 10-15 years prior to retirement. Schwab's version has some pretty hefty annual fees, other providers are likely similar.

As long as you're working for your main employer and maxing out the 401(k) there, the SEP seems basically equivalent to the solo 401(k) plan (limit of 25% of self-employment earnings). If you plan to continue your side business after you leave your other job, and you plan to earn less than $212k/year from it, the solo 401(k) would become better than a SEP because you will then be able to contribute 100% of your first $18k of self-employment income plus 25% of anything past that up to a total of $53k.

I'm having a hard time envisioning a scenario where the SIMPLE IRA offers a higher limit, especially when you already max out a 401(k) elsewhere. Skip it. The other options don't look any better than a 401(k) either.