Maximizing Tax-Deferred Contributions With Solo Ks

[amorfati]

I have been doing some digging of late about maximizing our tax-deferred retirement vehicles and found this little gem on White Coat Investor:

https://www.whitecoatinvestor.com/multiple-401k-rules/

The way I read this is if things are organized properly one could contribute the following if they're married:

1.  $13k to backdoor Roth IRAs
2.  $132k per unrelated employer (not part of a 'controlled group') as long as the contribution is 25% or less of net earnings

So in theory provided one had enough earned income from disparate business lines that are not considered a 'controlled group' additional dollars could be tax-deferred after this $145k max-out....yes?

We have business interests outside of our W2 employers that would allow us to fund Item 2 above.  One motivation for starting a separate business would be to increase deferrals past 1 and 2, but I am trying to make sure I am reading this correctly and understanding that whys and what-fors before we do much more planning. 

What say you tax wizards?

[seattlecyclone]

The annual additions limit is $66k, so if you worked for two unrelated employers you could plausibly get to $132k total between the two. It's not $132k per employer.

[MDM]

The annual additions limit is $66k, so if you worked for two unrelated employers you could plausibly get to $132k total between the two. It's not $132k per employer.

The mix of singular and plural muddies things, but "one could contribute the following if they're married" might mean the OP is looking at the total for both spouses.

[amorfati]

I am looking for the total for both spouses.

If you look at the link from the article above here is the relevant law:

https://www.law.cornell.edu/uscode/text/26/415

(g)Aggregation of plans
Except as provided in subsection (f)(2), the Secretary, in applying the provisions of this section to benefits or contributions under more than one plan maintained by the same employer, and to any trusts, contracts, accounts, or bonds referred to in subsection (a)(2), with respect to which the participant has the control required under section 414(b) or (c), as modified by subsection (h), shall, under regulations prescribed by the Secretary, disqualify one or more trusts, plans, contracts, accounts, or bonds, or any combination thereof until such benefits or contributions do not exceed the limitations contained in this section. In addition to taking into account such other factors as may be necessary to carry out the purposes of subsection (f), the regulations prescribed under this paragraph shall provide that no plan which has been terminated shall be disqualified until all other trusts, plans, contracts, accounts, or bonds have been disqualified.

He seems to rely on the fact that these sections:
(f) Combining of plans
(1) In general
For purposes of applying the limitations of subsections (b) and (c)—
(A) all defined benefit plans (whether or not terminated) of an employer are to be treated as one defined benefit plan, and
(B) all defined contribution plans (whether or not terminated) of an employer are to be treated as one defined contribution plan.

have the modifier that reads 'of an employer' in it.  Whether or not one can rely on this language to assume that other employers would permit one to exceed this limit is what I am questioning.  I am guessing that whoever wrote all of this probably wasn't really focused on the fact that one could have multiple employers.

Surely there is some case law or other guidance on this.  But where?

Thoughts?

[seattlecyclone]

Sure if both spouses are employed by the same company and each earns enough and the plan is set up to facilitate maxing out that annual additions limit, they could do $132k combined with that employer.  And then if either spouse has a second (sufficiently unrelated) employer they could contribute more with that other employer's plan. The limit really is per employer for this, and yes they weren't too concerned about well-off folks with multiple employers potentially sheltering a lot. The tax code favors the wealthy in a number of ways, and this is one. The number of people who max out the annual additions limit at even one employer is pretty small to begin with; being able to do it at two is one of the edgiest of edge cases.

[amorfati]

Sure if both spouses are employed by the same company and each earns enough and the plan is set up to facilitate maxing out that annual additions limit, they could do $132k combined with that employer.  And then if either spouse has a second (sufficiently unrelated) employer they could contribute more with that other employer's plan. The limit really is per employer for this, and yes they weren't too concerned about well-off folks with multiple employers potentially sheltering a lot. The tax code favors the wealthy in a number of ways, and this is one. The number of people who max out the annual additions limit at even one employer is pretty small to begin with; being able to do it at two is one of the edgiest of edge cases.

This is how I read things too and it matches the IRS's language here:

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

//Quote
Example 1: In 2020, Greg, 46, is employed by an employer with a 401(k) plan, and he also works as an independent contractor for an unrelated business and sets up a solo 401(k). Greg contributes the maximum amount to his employer’s 401(k) plan for 2020, $19,500. He would also like to contribute the maximum amount to his solo 401(k) plan. He is not able to make further elective deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $19,500. He would also like to contribute the maximum amount to his solo 401(k) plan.

Greg is not able to make further elective salary deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $19,500, to his employer’s plan. However, he has enough earned income from his business to contribute the overall maximum for the year, $57,000. Greg can make a nonelective contribution of $57,000 to his solo 401(k) plan. This $57,000 limit is not reduced by the elective deferrals Greg made under his employer’s plan because the limit on annual additions applies to each plan separately.
//End Quote

I recall reading about control groups elsewhere in the tax regulations a long time ago, but I don't think it is addressed in this part of the code.  It seems like the code is written from an employer's point of view for this and doesn't really contemplate how it would work for employees with a lot of bargaining power such that they could work multiple jobs or for small business owners who could potentially start separate plans.  For instance, a real estate developer could also do hard money loans and some consulting business.  I don't know if/how these would be considered a 'control group,' but it seems plausible that they could be 'separate businesses' if they're formed properly.