Solo 401k

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Greengo
Posts: 4
Joined: Wed Mar 31, 2021 8:51 pm

Solo 401k

Post by Greengo »

Hi Goglehead friends! My husband and I are independent contractors - 1099. We have already contribute max amount to our Roth IRA. I am planning to open a Solo /Roth 401(k) - we have no employees … Does anyone have experience with Solo/Roth 401K. Do we open two separate accounts (one for me and one for him) and still can contribute to each others account? And idea how to maximize this tax advantage account? Pros and Cons? :moneybag :idea:
TIA!
eukonomos
Posts: 112
Joined: Mon Jan 01, 2018 2:26 pm

Re: Solo 401k

Post by eukonomos »

Greengo wrote: Wed Jul 21, 2021 10:30 pm Hi Goglehead friends! My husband and I are independent contractors - 1099. We have already contribute max amount to our Roth IRA. I am planning to open a Solo /Roth 401(k) - we have no employees … Does anyone have experience with Solo/Roth 401K. Do we open two separate accounts (one for me and one for him) and still can contribute to each others account? And idea how to maximize this tax advantage account? Pros and Cons? :moneybag :idea:
TIA!
If you were separate independent contractors in separate businesses, you could open separate solo 401k's. [EDIT: this might not be true - see the following posts.]

But since you say "we have no employees," I guess you are working in the same business. Then you have choices on your business structure. See, for example, https://www.solo401k.com/blog/how-to-in ... -solo-401k.
It looks like both can participate in the business's solo 401k. I don't know about contributing to the other's account.
Last edited by eukonomos on Sat Jul 24, 2021 8:48 am, edited 1 time in total.
nolesrule
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Joined: Thu Feb 26, 2015 10:59 am

Re: Solo 401k

Post by nolesrule »

Are you independent contractors or self employed running a business?
SuzBanyan
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Joined: Thu Jun 02, 2016 11:20 am

Re: Solo 401k

Post by SuzBanyan »

Is it a single business you run together or separate businesses you run without the other’s involvement? And I know this may sound like a weird question but it matters to the IRS in determine a “controlled group”, if it’s 2 businesses, do you have minor children?
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ICMoney
Posts: 420
Joined: Fri Oct 28, 2016 2:38 pm

Re: Solo 401k

Post by ICMoney »

eukonomos wrote: Thu Jul 22, 2021 7:45 am
Greengo wrote: Wed Jul 21, 2021 10:30 pm Hi Goglehead friends! My husband and I are independent contractors - 1099. We have already contribute max amount to our Roth IRA. I am planning to open a Solo /Roth 401(k) - we have no employees … Does anyone have experience with Solo/Roth 401K. Do we open two separate accounts (one for me and one for him) and still can contribute to each others account? And idea how to maximize this tax advantage account? Pros and Cons? :moneybag :idea:
TIA!
If you were separate independent contractors in separate businesses, you could open separate solo 401k's.

But since you say "we have no employees," I guess you are working in the same business. Then you have choices on your business structure. See, for example, https://www.solo401k.com/blog/how-to-in ... -solo-401k.
It looks like both can participate in the business's solo 401k. I don't know about contributing to the other's account.
I think this response is misleading. If you are married, then you may only establish one solo 401(k) plan as you are a "controlled group". You cannot have two solo 401(k)s for a "controlled group" - i.e. husband and wife must use the same solo 401(k) plan. Even if they are running two unrelated businesses, the "controlled group" means they both must use the same solo 401(k) plan. Both husband and wife if they have legitimate 1099 income may contribute to this controlled group solo 401(k), and they will each have their own accounts within the solo 401(k). But there is only one solo 401(k) plan.

Be careful choosing a solo 401(k) provider if you have a controlled group. Do a forum search, but my understanding is some of the mainstream providers may not handle solo 401(k)s for controlled groups.

Best, ICM
Statistical
Posts: 113
Joined: Tue Jul 06, 2021 1:08 pm

Re: Solo 401k

Post by Statistical »

ICMoney wrote: Thu Jul 22, 2021 7:12 pm
eukonomos wrote: Thu Jul 22, 2021 7:45 am
Greengo wrote: Wed Jul 21, 2021 10:30 pm Hi Goglehead friends! My husband and I are independent contractors - 1099. We have already contribute max amount to our Roth IRA. I am planning to open a Solo /Roth 401(k) - we have no employees … Does anyone have experience with Solo/Roth 401K. Do we open two separate accounts (one for me and one for him) and still can contribute to each others account? And idea how to maximize this tax advantage account? Pros and Cons? :moneybag :idea:
TIA!
If you were separate independent contractors in separate businesses, you could open separate solo 401k's.

But since you say "we have no employees," I guess you are working in the same business. Then you have choices on your business structure. See, for example, https://www.solo401k.com/blog/how-to-in ... -solo-401k.
It looks like both can participate in the business's solo 401k. I don't know about contributing to the other's account.
I think this response is misleading. If you are married, then you may only establish one solo 401(k) plan as you are a "controlled group". You cannot have two solo 401(k)s for a "controlled group" - i.e. husband and wife must use the same solo 401(k) plan. Even if they are running two unrelated businesses, the "controlled group" means they both must use the same solo 401(k) plan. Both husband and wife if they have legitimate 1099 income may contribute to this controlled group solo 401(k), and they will each have their own accounts within the solo 401(k). But there is only one solo 401(k) plan.

Be careful choosing a solo 401(k) provider if you have a controlled group. Do a forum search, but my understanding is some of the mainstream providers may not handle solo 401(k)s for controlled groups.

Best, ICM
That is not universally true if there are no minor children by the spouses.

https://www.consultrms.com/Resources/40 ... a-Business

https://www.employeebenefitslawgroup.co ... l-article/

https://www.law.cornell.edu/uscode/text/26/1563 (1563 e 5 & 6)

At one time both my wife and owned separate single member LLCs and we both had SE 401(k) with combined contributions in excess of 415 limit ($58K in 2020) for a number of years. We were audited and the IRS agent found we were NOT a controlled group but we have always been careful with the structure and operation and the two businesses are completely unrelated and we have no children. We also don't live in a community property state which is depending on which lawyer you ask a death blow for the spousal exception

Now if there are any minor children in the household, any share ownership, any shared officer roles, any income/wages by the non-owning spouse in in either business, or if the couple resides in a community property state then yes a controlled group exists.
eukonomos
Posts: 112
Joined: Mon Jan 01, 2018 2:26 pm

Re: Solo 401k

Post by eukonomos »

SuzBanyan wrote: Thu Jul 22, 2021 8:00 am Is it a single business you run together or separate businesses you run without the other’s involvement? And I know this may sound like a weird question but it matters to the IRS in determine a “controlled group”, if it’s 2 businesses, do you have minor children?
ICMoney wrote: Thu Jul 22, 2021 7:12 pm
eukonomos wrote: Thu Jul 22, 2021 7:45 am If you were separate independent contractors in separate businesses, you could open separate solo 401k's.
...
I think this response is misleading. If you are married, then you may only establish one solo 401(k) plan as you are a "controlled group". ...
Statistical wrote: Fri Jul 23, 2021 8:19 pm That is not universally true if there are no minor children by the spouses.
...
Thank you all for adding this important information to my response.
Topic Author
Greengo
Posts: 4
Joined: Wed Mar 31, 2021 8:51 pm

Re: Solo 401k

Post by Greengo »

Thank you for everyone`s input...We are separate independent contractors in separate businesses, we have two separate incomes (I am a Real Estate agent and my husband is an independent contractor) and we have a minor child.
In this case we can have two solo 401K or only one?
SuzBanyan
Posts: 658
Joined: Thu Jun 02, 2016 11:20 am

Re: Solo 401k

Post by SuzBanyan »

Greengo wrote: Sun Aug 01, 2021 10:26 pm Thank you for everyone`s input...We are separate independent contractors in separate businesses, we have two separate incomes (I am a Real Estate agent and my husband is an independent contractor) and we have a minor child.
In this case we can have two solo 401K or only one?
Only 1. I believe that “minor child” means that your businesses are part of a “controlled group”.

But as noted above, you will each have a separate account (or 2, if you have Botha traditional and a Roth 401k).
SuzBanyan
Posts: 658
Joined: Thu Jun 02, 2016 11:20 am

Re: Solo 401k

Post by SuzBanyan »

Here is some practical information from guru SpiritRider:

“ By attribution you [husband and wife] are also each deemed to own 100% of the other's business. As such these two businesses constitute a controlled group and the two of you should only adopt a single one-participant 401k plan with individual account(s) for each of you.

You can still file MFJ with a separate Schedule C/SE for each of your businesses.
Your individual contributions are based on each businesses net earnings from self-employment (earned income) = business profit - 1/2 SE tax. Your individual contributions are limited to:
Employee deferrals of up to 100% of earned income not to exceed the employee deferral limit (2020 = $19.5K) across all 401k, 403b and SIMPLE IRA plans….
Employer contributions up to 25% of compensation (earned income - employer contribution) or more easily calculated as 20% of earned income.
There is also an (employee + employer) annual addition limit. This is the lessor of the dollar limit (2020 = $57K) and 100% of compensation (earned income - employer contribution.” This is from a 2020 post: viewtopic.php?t=328284
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