Author Topic: Question about Solo 401k  (Read 510 times)

Trifele

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Question about Solo 401k
« on: February 21, 2019, 03:16:21 AM »
Hey there

I FIREd from my W2 job (where I had access to the 401k) at the end of January.  For the remainder of this year I will have some self-employment income.  I'm looking into opening a Solo 401k for myself. 

Question:  If I had access to an employer's 401k for one month of the year and am then self-employed for the remaining 11 months, does the $56,000 Solo 401k limit apply for the year?  In other words, in a year where I have access to both an Employer 401k and a Solo 401k -- but not at the same time -- is there anything stopping me from contributing $56,000 total for the year? 

It seems like a simple question, but I haven't been able to find a straight answer.  Thanks for the help!   

terran

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Re: Question about Solo 401k
« Reply #1 on: February 21, 2019, 06:10:38 AM »
I have never seen anything reducing the limits for partial year coverage.

Only income earned while the plan is open can be counted towards the contribution, so the usual advice is to make the plan effective January 1 of the year you open it, which you can do.

The $19k limit is across all plans, so if you already contributed to your previous employer's 401(k) you can't contribute the full $19k to your solo 401(k).

By my math you'd need $195,578 in self employed net income to make the full $56k contribution if you can make the full $19k employee contribution, $291,867 in income if you can't make any of the $19k employee contribution (because you already contributed $19k to another employer's plan), and in between those if you can make some of the employee contribution.

If you open a custom plan (which costs money) that allows for mega backdoor Roth contributions you could hit the limit at a lower income, but I think you'd still need at least as much net income after deducting 1/2 of self employment tax to cover the contribution.

Edit: If you're over 50, there's also a $6k catchup contribution in addition to the $19k/$56k limits.
« Last Edit: February 21, 2019, 06:13:39 AM by terran »

Trifele

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Re: Question about Solo 401k
« Reply #2 on: February 21, 2019, 07:17:11 AM »
Thanks, @terran!  Yes -- I'm over 50.  So it looks like I can contribute the following:

$25,000 total on the individual deferral (between the two 401ks)
+
Up to 25% of compensation for the employer contribution
=
Maximum of $56,000

Thanks again.  I won't make anywhere near $200k, so I won't be bumping up against that max.  Just wanted to make sure I wasn't missing something.   
 

terran

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Re: Question about Solo 401k
« Reply #3 on: February 21, 2019, 07:55:30 AM »
Actually, I'm like 90% sure the catchup contribution is in addition to the $56k max making it actually a $62k max. But unless you make a lot of self employment income that won't be an issue anyway.

Keep in mind that the 25% isn't just a straight 25%. Your tax software will figure it for you, or I think it's publication 560 that has the worksheet.

Trifele

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Re: Question about Solo 401k
« Reply #4 on: February 21, 2019, 03:25:47 PM »
Actually, I'm like 90% sure the catchup contribution is in addition to the $56k max making it actually a $62k max.

Yes, I just checked the IRS publication and and it looks like that's right.  Thanks again!