The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: mrtimo on August 31, 2017, 04:58:05 PM
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I have a job and a side business and I'm married.
I fund my day job 401k up to the limit of 18k.
If I setup a solo 401k for my side business, I couldn't put in any salary contribution since I am already funding my day-job 401k to the max, correct? However, I could do an "employer contribution" of 20%...
My wife stays at home (no job) and only does the 5k contribution to trad-IRA. Could I set her up a solo 401k from our side business (which I mostly run) and then do a salary contribution up to the 18k max for her? Our side business only does 3-13k per year.
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I have a job and a side business and I'm married.
I fund my day job 401k up to the limit of 18k.
If I setup a solo 401k for my side business, I couldn't put in any salary contribution since I am already funding my day-job 401k to the max, correct? However, I could do an "employer contribution" of 20%...
My wife stays at home (no job) and only does the 5k contribution to trad-IRA. Could I set her up a solo 401k from our side business (which I mostly run) and then do a salary contribution up to the 18k max for her? Our side business only does 3-13k per year.
1. Just want to confirm, this is a Sole Proprietorship right? No employees? Otherwise you can't have a Solo401k.
2. Does your wife contribute any time at all to the business? She doesn't need to put in crazy hours, but if she actually does nothing, she can't contribute to a Solo401k in the company's name.
3. You can only contribute earned income to a Solo401k, that was directly attributed to the business. If the business only profits $3,000-$13,000 a year, that's all you can contribute.
4. Note, I said profits. If you spend $10,000 on goods, then sell them for $15,000, you can't contribute $15,000 to a Solo401k. The revenue would be $15,000, but the profits are only $5,000. You can only contribute that $5,000 to a Solo401k.
Hope this helps!
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Thanks - and just to confirm. If I'm already maxing out my day job 401k... I can't contribute to the solo 401k. right?
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2. a.)
Both spouses must materially participate in a qualified joint venture. That means 500 hours from each of you.
https://www.irs.gov/instructions/i1040se/ch01.html
https://www.irs.gov/pub/irs-pdf/p925.pdf
Material participation tests.
You materially participated in a trade or business activity for a
tax year if you satisfy any of the following tests.
1. You participated in the activity for more
than 500 hours.