Solo 401k / Employer Sponsored 401k Contribution

[atn1kxf]

My wife starts a new job next week as an employee for a company she's been an independent contractor for the last three years.  During this three-year time period, she opened and contributed to a Solo 401k.  I have read that the IRS allows a contribution to both plans only if the businesses you work for have no legal overlap or affiliated relationship.  Does this mean, she will not be allowed to make contributions to her Solo 401k for work she did earlier this year prior to becoming an employee of the company?  Note: I’m not clear if this makes a difference, but when she was an independent contractor, she was paid by a third-party staffing company on behalf of the employer.

[Chris @ Saturday Financial]

Disclaimer: Not tax advice, but here is some information you can continue to research:

I'm guessing you read about controlled group rules?

"The [controlled group] rules are in place to restrict the owner(s) of a business with full-time employees from establishing a new company with no employees and adopting a Solo 401(k) plan that would exclude the full-time employees from the other company." -from the summary article linked below

Your wife is about to become an employee of another company, not an owner of another company. So the controlled group rules don't apply to her situation.

Further reading...

Summary article: https://www.irafinancialgroup.com/learn-more/solo-401k/solo-401k-plan-controlled-group-rules/

IRS publication: https://www.irs.gov/pub/irs-tege/epchd704.pdf

[Chris @ Saturday Financial]

Adding this even though you're probably already aware:

Her 2021 elective deferral limit across BOTH plans will be $19,500. Or $26,000 if she is 50 or over. In other words, she doesn't get extra deferral limit space just because she has access to two plans this year.

The good news: in addition to the elective deferral limit, she can make employer non-elective contributions to her Solo 401k plan. See here for more details: https://www.irs.gov/retirement-plans/one-participant-401k-plans