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Eligibility for solo 401k for W2 employee with 403b

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  • Avatar Hats4Bats 
    Participant
    Status: Physician
    Posts: 4
    Joined: 04/25/2019

    I admit I’m not understanding the multiple 401k discussion, and I did read the WCI article on it. During the FYFA course, Jim mentions that having a 403b is somewhat of a complicating factor for having a solo 401k.  I didn’t understand.

    Here’s my situation:

    -w2 employee @ a university

    -I max the retirement account which is about half my contribution (18k) and half employer match (18k)

    -max the separate 403b. with the above retirement account, that gets me to the $55k/yr max

    -max a separate 457

    -backdoor roth

    -make about 4-8k/yr in consulting.

    questions: (A) can I do a solo 401k from my consulting earnings, or have I maxed out already? (B) what’s the complicating factor with the 403b (C) is this worth it?  I don’t think I have any more tax-advantaged options.

    Thanks!

    #209636 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7939
    Joined: 01/09/2016

    Can you clarify the retirement account you max? Since everything else you are contributing to is also a “retirement account”, is this a 401a? The qualified plan limit this year is $19k – is that what you actually are contributing and having matched?

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #209676 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2244
    Joined: 03/01/2018

    You have self employment income. Therefore you are eligible to establish a one participant 401k

    You get one $19k employee elective deferral limit across all 401k and 403b plans

    Your 403b and one participant 401k plan amounts get aggregated for purposes of the annual addition limit, $56k in 2019. This means that your addition limit to a one participant 401k is $56k minus however much goes into the 403b

    I’m assuming you’ve used up your elective deferral limit already. Therefore the only contributions you could make to a one participant 401k would be employer contributions (profit sharing) or employee after tax (non Roth) contributions.

    If you established a semi custom solo plan which allowed after tax contributions and in plan Roth rollover then you could put almost all of your consulting income into the plan and have those dollars end up as Roth.

    If you establish a free solo plan then you could only put about 20% of your consulting income into the plan, as pretax.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #209683 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 4187
    Joined: 01/08/2016
    I max the retirement account

    Click to expand…

    what account is this?

    that gets me to the $55k/yr max

    Click to expand…

    56K/yr

    -make about 4-8k/yr in consulting. questions: (A) can I do a solo 401k from my consulting earnings

    Click to expand…

    yes

    (B) what’s the complicating factor with the 403b (C) is this worth it?

    Click to expand…

    you already used up employee contributions. so are left with employer. 20% something something.

    up to you if its worth it.

    #209736 Reply
    Liked by Hank
    Avatar Hats4Bats 
    Participant
    Status: Physician
    Posts: 4
    Joined: 04/25/2019

    Thanks. Employer calls it an optional retirement plan, but sounds like it’s a 403(b) as far as IRS is concerned.  I contribute 6.65% and the match is 8.5%.  I believe there’s a separate 403(b) for another $19k/yr.  then 19k for 457.

    does this make sense?

    #214804 Reply
    Avatar Hats4Bats 
    Participant
    Status: Physician
    Posts: 4
    Joined: 04/25/2019

    thanks

    my employer match is 8.5%.

    so does that mean this is the amount that I can put towards a solo 401k?

    #214805 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1852
    Joined: 02/01/2016

    Contribution percentages of your W-2 employer plans have nothing to do with contribution percentages to a one-participant 401k.

    This sounds very familiar. This sounds exactly like the accounts that @tim has in the employer match thread.

    If the 6.65% employee mandatory contribution, 8.5% employer contribution and the $19K employee elective contribution are all to 403b accounts totaling $56K, you will not be able to make any contributions to a one-participant 401k.

    This is because 403b employee + employer annual additions must be aggregated with the annual additions of all employer plans of > 50% owned businesses of the 403b participant.

    #214824 Reply
    Liked by Tim
    Avatar Uncle Scrooge 
    Participant
    Status: Spouse
    Posts: 31
    Joined: 07/24/2017

    What is the employee’s share of the owned business is exactly 50%? Would that make a difference? If so, could OP split his ownership share with spouse?

    #215927 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2244
    Joined: 03/01/2018

    What is the employee’s share of the owned business is exactly 50%? Would that make a difference? If so, could OP split his ownership share with spouse?

    Click to expand…

    what owned business?

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #215931 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1852
    Joined: 02/01/2016

    What is the employee’s share of the owned business is exactly 50%? Would that make a difference? If so, could OP split his ownership share with spouse?

    Click to expand…

    Through attributions each spouse is deemed to have the combined ownership in the business. In your example, each spouse would be deemed to own 100% of the business. Congress and the IRS are way ahead of you.

    However, if you are one half of a 50:50 partnership not subject to family attributions rules, your 403b annual additions are not aggregated with those of businesses under such ownership.

    #215994 Reply
    Avatar Hats4Bats 
    Participant
    Status: Physician
    Posts: 4
    Joined: 04/25/2019

    i’m lost.  i don’t have a business.  i have consulting income.  i am a state employee w W2 paycheck.  i thought in jim’s podcast, it sounded like there was another w2 doc who did moonlighting and jim said that was the “exact” person who should do a solo 401k. sounded like i was similar to that doc on the podcast

    #216272 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7939
    Joined: 01/09/2016

    i’m lost.  i don’t have a business.  i have consulting income.  i am a state employee w W2 paycheck.  i thought in jim’s podcast, it sounded like there was another w2 doc who did moonlighting and jim said that was the “exact” person who should do a solo 401k. sounded like i was similar to that doc on the podcast

    Click to expand…

    @uncle_scrooge directed this convo on an irrelevant tangent, pls ignore. I don’t (have time to) listen to the podcasts so cannot comment – and you shouldn’t assume everyone who bothers to read and answer follows all of the podcasts (geez). @spiritrider‘s simple response on #214824 is all you need re: your solution.

    KISS, no offense intended 😉

    By the way – welcome to the forum!!!

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #216292 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2244
    Joined: 03/01/2018
    -make about 4-8k/yr in consulting.

    Click to expand…
    i’m lost.  i don’t have a business.  i have consulting income.

    Click to expand…

    if your consulting income is paid to you on a 1099, then you do have a business – by default, you have a sole proprietorship, with this income reported on schedule C of your tax return.

     

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #216309 Reply
    Liked by spiritrider

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