Question for the Self-Employed Regarding Solo 401k/IRA Contributions Limits

[Louis the Cat]

I am self-employed with a very small but growing income (this year should be between $7k-$8k). My husband and I have recently realized that we can max his 401k, two IRAs and our HSA without any difficulty. (It was sort of a 'doh' moment. His income rose rapidly in the last year and we hadn't thought about it until asking some other questions on this forum.) This leaves a Solo 401k for me as the last tax-advantaged route but I can only contribute as much as I make to the Solo 401k. My question is this: do the limits that apply to contributions for 401ks and IRAs apply across both platforms? Because I only make $7k, most of that would be invested in my IRA already. Can I then only contribute the remaining $1,500 in the Solo 401k or is that a separate income based limit, allowing me/us to contribute an additional $7k after maxing out the IRA?

[Cheddar Stacker]

I believe the limits "crossover" meaning you can't use one income source for two different contributions.

However, you could have zero income and do a spousal IRA contribution since you're married, so I think you can use that to your advantage. Article on spousal IRA's: http://www.investopedia.com/articles/retirement/03/021903.asp

So use your income for the solo 401k, then use your husbands for your IRA contribution provided there is enough to cover both of you.

[Louis the Cat]

Thanks for pointing me toward Investopedia.  It looks to me like we could make the following tax advantaged contributions, assuming we have the income and we do (~$110,000 this year):

His 401k: $17,500 (max)
His IRA: $5,500 (max)
My IRA: $5,500 (max, technically out of his income)
My Solo 401k: as much as we choose, up to my net income for the given year, should be ~$4,000 after expenses this year

Am I reading all of this right? Is there some declaration we would need to make regarding the spousal IRA contribution or is it simply assumed when we file jointly?

[rubor]

Couldn't you also do a Simple IRA with a lower amount like this? I think Simple IRA max is around 11-12K per year. Less paperwork would be the advantage.

[Louis the Cat]

The SIMPLE IRA would require to me to establish one as a business entity (I'm self-employed) which looks like quite a bit more paperwork, actually. It may be time to talk to a financial professional with more of our specifics and discuss all the options. I'll admit, my first temptation is to say screw it, forget everything but a basic IRA for me and throw the rest in taxable accounts but I think patience will pay off if I can bear to teach myself about the more complex options. It's not that much money now, but in time, it should grow modestly. I'm never going to be a 6 figure earner by myself (unless something incredible happens) but taking the time to figure this out now should result in a nice extra boost later.

[Cheddar Stacker]

Thanks for pointing me toward Investopedia.  It looks to me like we could make the following tax advantaged contributions, assuming we have the income and we do (~$110,000 this year):

His 401k: $17,500 (max)
His IRA: $5,500 (max)
My IRA: $5,500 (max, technically out of his income)
My Solo 401k: as much as we choose, up to my net income for the given year, should be ~$4,000 after expenses this year

Am I reading all of this right? Is there some declaration we would need to make regarding the spousal IRA contribution or is it simply assumed when we file jointly?

Look correct to me. I don't think there's any declaration for a spousal IRA, you just make the contribution.

Couldn't you also do a Simple IRA with a lower amount like this? I think Simple IRA max is around 11-12K per year. Less paperwork would be the advantage.

Yep, Simple IRA could work as well, or a SEP IRA, but they all have different contribution rules so be careful. SEP IRA virtually no paperwork but lower contribution limits based on earnings.