Solo 401k and regular 401k

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amitb00
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Solo 401k and regular 401k

Post by amitb00 » Wed Oct 11, 2017 5:08 pm

I understand that if you are an independent contractor you can save 53k in Solo 401k. How does it work if in the same year, you have done contracting for few months and job in a company offering 401k for remainder. Are you able to do sum of 53k and 18k or do both get prorated depending on how many months you spent on each?
Thanks
Amit

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neurosphere
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Re: Solo 401k and regular 401k

Post by neurosphere » Wed Oct 11, 2017 5:14 pm

An employee, you can make a total of $18,000 contributions (assuming no catch ups) across all employers.

For example, I have a regular W2 job where I contribute the max of $18,000 to my 401k. That means I cannot make an additional contributions as an employee through my solo 401k. But my schedule C job with the solo 401k can still make profit sharing contributions up to the $54,000 415 limit.

I

avalpert
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Re: Solo 401k and regular 401k

Post by avalpert » Wed Oct 11, 2017 5:25 pm

The limits are annual limits, not prorated monthly.

amitb00
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Re: Solo 401k and regular 401k

Post by amitb00 » Wed Oct 11, 2017 6:53 pm

Thanks neurosphere and avelpert.
So I will take that if some one was an independent contractor for part of year and W2 employee for rest and if he has sufficient income, he can contribute 54k to solo 401k as employer and 18k as employee from his W2 job (assuming done in different months).
How do folks contribute to solo 401k? Do they open an account at say Vanguard and contribute from money they have and at time of filing tax, this will be excluded from income?
Thanks in advance, Amit

aristotelian
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Re: Solo 401k and regular 401k

Post by aristotelian » Wed Oct 11, 2017 7:01 pm

Employee contributions have to go in during the calendar year. Employer contribution can go in the following April.

Vanguard has a separate small business site for solo 401ks and related plans.

avalpert
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Re: Solo 401k and regular 401k

Post by avalpert » Wed Oct 11, 2017 7:26 pm

aristotelian wrote:
Wed Oct 11, 2017 7:01 pm
Employee contributions have to go in during the calendar year. Employer contribution can go in the following April.
That depends on how you are paid - if you are a sole proprietor you can make the contribution up until your tax filing due date (including extensions). You need to elect to contribute before the end of the year, but don't have to make the actual contribution.

If you have an S-Corp and thus paid via a W2 you need to be withholding the contributions from your paychecks and so it will have to be contributed during the calendar year.

avalpert
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Re: Solo 401k and regular 401k

Post by avalpert » Wed Oct 11, 2017 7:30 pm

amitb00 wrote:
Wed Oct 11, 2017 6:53 pm
Thanks neurosphere and avelpert.
So I will take that if some one was an independent contractor for part of year and W2 employee for rest and if he has sufficient income, he can contribute 54k to solo 401k as employer and 18k as employee from his W2 job (assuming done in different months).
Yes, but employer contributions are also limited to 20% of net income (adjusted for the employer-side of self employment taxes).
How do folks contribute to solo 401k? Do they open an account at say Vanguard and contribute from money they have and at time of filing tax, this will be excluded from income?
Thanks in advance, Amit
Since you are only talking about contributing employer match you should wait until you can compute your net income so you know what your contribution limit is and don't over-contribute. You will want to establish the 401k during the year you want the contribution to be for (or earlier). The contribution goes on line 28 of your 1040 as part of calculating adjusted gross income.

Spirit Rider
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Re: Solo 401k and regular 401k

Post by Spirit Rider » Wed Oct 11, 2017 8:04 pm

avalpert's recommendation is well founded, because unlike a SEP IRA contribution and 401k employee deferrals, 401k excess employer contributions can not normally be returned. They are subject to a 10% excise tax and a minimum of two years of 401k plan filings.

However, it is possible to be careful and contribute no more than 75% of your estimated net self-employment earnings are you receive them during the year. Since the contribution rate is 20%, you simply contribute 15% of net self employment earnings (net business profit - 1/2 SE tax). Make sure you are not just basing it on just your gross receipts. Then you can contribute the last ~25% at time of tax filing.

aristotelian
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Re: Solo 401k and regular 401k

Post by aristotelian » Wed Oct 11, 2017 8:43 pm

avalpert wrote:
Wed Oct 11, 2017 7:26 pm
aristotelian wrote:
Wed Oct 11, 2017 7:01 pm
Employee contributions have to go in during the calendar year. Employer contribution can go in the following April.
That depends on how you are paid - if you are a sole proprietor you can make the contribution up until your tax filing due date (including extensions). You need to elect to contribute before the end of the year, but don't have to make the actual contribution.

If you have an S-Corp and thus paid via a W2 you need to be withholding the contributions from your paychecks and so it will have to be contributed during the calendar year.
Thanks for the correction. I was thinking of the deadline to establish the plan, which is Dec. 31 of the contribution year.

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