Author Topic: Maxing out my 401k any point in opening a Solo-401k?  (Read 4522 times)

mrtimo

  • 5 O'Clock Shadow
  • *
  • Posts: 25
  • Location: WA
Maxing out my 401k any point in opening a Solo-401k?
« on: March 23, 2016, 04:00:03 PM »
Thinking about opening a solo 401k, but I'm already maxing out my 401k from my main job. Would I be able to contribute to it? Could I do 25% of compensation or the elective deferral amount?

My research leads me to think that I can't contribute to it, or if I can it would just be the 25% of compensation (not the elective lump sum).
« Last Edit: March 23, 2016, 04:02:00 PM by mrtimo »

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 5935
  • Age: 36
  • Location: Seattle, WA
    • My blog
Re: Maxing out my 401k any point in opening a Solo-401k?
« Reply #1 on: March 23, 2016, 04:24:29 PM »
If you're already maxing out the $18k elective deferral in your W-2 job, then you can't do another $18k elective deferral from your self-employment income. However you could still do the 25% of compensation thing into a solo 401(k).

Note that if you're not going to be able to do an elective deferral in a solo 401(k), the contribution limit is then the same as a SEP plan if that would be more convenient for some reason.

mrtimo

  • 5 O'Clock Shadow
  • *
  • Posts: 25
  • Location: WA
Re: Maxing out my 401k any point in opening a Solo-401k?
« Reply #2 on: March 23, 2016, 05:09:36 PM »
Could my wife (as my business partner) make the elective deferral? She is not contributing to a 401k.

protostache

  • Pencil Stache
  • ****
  • Posts: 900
Re: Maxing out my 401k any point in opening a Solo-401k?
« Reply #3 on: March 23, 2016, 06:22:12 PM »
Could my wife (as my business partner) make the elective deferral? She is not contributing to a 401k.

If your wife is actively contributing to the business she can contribute the elective deferral and receive up to 25% profit sharing (effective rate ~20%). Your and her match have to be the same percentage, and the $18k + profit matching can't exceed her total earned compensation. So, for example, you can't pay her $20k compensation and match $5k.

abbythebear

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: Maxing out my 401k any point in opening a Solo-401k?
« Reply #4 on: April 06, 2016, 01:55:44 PM »
Thinking about opening a solo 401k, but I'm already maxing out my 401k from my main job. Would I be able to contribute to it? Could I do 25% of compensation or the elective deferral amount?

My research leads me to think that I can't contribute to it, or if I can it would just be the 25% of compensation (not the elective lump sum).

How does the 25% compensation work?  Given the situation above (maxed 401k from primary job) - say side job makes $50k.  Since a Solo(K) pertains to "solo" entities, would someone essentially be compensating themselves 25% of the $50k they made?  So OP could essentially open a Solo(k) and put in $12,500 ($50 * 25%)?


bacchi

  • Walrus Stache
  • *******
  • Posts: 5695
Re: Maxing out my 401k any point in opening a Solo-401k?
« Reply #5 on: April 06, 2016, 02:13:14 PM »
The easiest is to use one of the handy calculators. Google for "solo 401k calculator."

Note that the 25% is for corporations; for 1099, the match is maxed at 20%.

DavidAnnArbor

  • Handlebar Stache
  • *****
  • Posts: 2279
  • Age: 55
  • Location: Ann Arbor, Michigan
Re: Maxing out my 401k any point in opening a Solo-401k?
« Reply #6 on: April 06, 2016, 08:01:37 PM »
If you're doing a solo 401k as a sole proprietor than the calculation has to take into account your Fica taxes.

Miss Piggy

  • Handlebar Stache
  • *****
  • Posts: 1378
Re: Maxing out my 401k any point in opening a Solo-401k?
« Reply #7 on: April 06, 2016, 08:09:23 PM »
I've had very good luck with my solo 401k. I max that out after I max out my 401k. I let my accountant tell me how much I can contribute to last year's solo 401k after she does my taxes for the year. You can contribute to last year's account until April 15 of the current year. (But unfortunately, you have to open the account by Dec. 31.

mrtimo

  • 5 O'Clock Shadow
  • *
  • Posts: 25
  • Location: WA
Re: Maxing out my 401k any point in opening a Solo-401k?
« Reply #8 on: April 06, 2016, 08:31:52 PM »
I've had very good luck with my solo 401k. I max that out after I max out my 401k. I let my accountant tell me how much I can contribute to last year's solo 401k after she does my taxes for the year. You can contribute to last year's account until April 15 of the current year. (But unfortunately, you have to open the account by Dec. 31.
After you do that? I thought that after you max out your 401k you can't contribute anything to your solo 401k (as an employee). ??

Miss Piggy

  • Handlebar Stache
  • *****
  • Posts: 1378
Re: Maxing out my 401k any point in opening a Solo-401k?
« Reply #9 on: April 06, 2016, 08:47:18 PM »
I've had very good luck with my solo 401k. I max that out after I max out my 401k. I let my accountant tell me how much I can contribute to last year's solo 401k after she does my taxes for the year. You can contribute to last year's account until April 15 of the current year. (But unfortunately, you have to open the account by Dec. 31.
After you do that? I thought that after you max out your 401k you can't contribute anything to your solo 401k (as an employee). ??

That's a fair question, and information is pretty hard to find on the web.

My "regular" 401k is through a contract job for which I get paid as a W-2 employee. I contribute the annual max to that and get the employer match.

My solo 401k is through my own business. I can add up to 20% of my business profit as "profit sharing" to my solo 401k.

The combined maximum for both accounts is $53,000 for 2015 (or $59,000 for those 50 and over).


ETA: Don't take my word for it, though. Talk to an account for possibly more accurate information.
« Last Edit: April 06, 2016, 08:49:26 PM by Miss Piggy »

protostache

  • Pencil Stache
  • ****
  • Posts: 900
Re: Maxing out my 401k any point in opening a Solo-401k?
« Reply #10 on: April 07, 2016, 05:10:54 AM »
I've had very good luck with my solo 401k. I max that out after I max out my 401k. I let my accountant tell me how much I can contribute to last year's solo 401k after she does my taxes for the year. You can contribute to last year's account until April 15 of the current year. (But unfortunately, you have to open the account by Dec. 31.
After you do that? I thought that after you max out your 401k you can't contribute anything to your solo 401k (as an employee). ??

That's a fair question, and information is pretty hard to find on the web.

My "regular" 401k is through a contract job for which I get paid as a W-2 employee. I contribute the annual max to that and get the employer match.

My solo 401k is through my own business. I can add up to 20% of my business profit as "profit sharing" to my solo 401k.

The combined maximum for both accounts is $53,000 for 2015 (or $59,000 for those 50 and over).


ETA: Don't take my word for it, though. Talk to an account for possibly more accurate information.

The combined limit is actually quite a bit higher than that. A single individual can put in their $18k, and then each employer they work for has a separate $53k limit.

White Coat Investor has a good post on it here: http://whitecoatinvestor.com/multiple-401k-rules/