Maximize tax benefit of solo 401k

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  • Avatar GPGP 
    Status: Physician
    Posts: 186
    Joined: 05/02/2017


    So I have a w-2 job and am starting a small 1099 side gig.

    For better or worse, this year I’m going to limit 401k contributions to 19K total (need to deploy extra cash to other areas).

    Scenario 1 – 19K as my employee contribution, no solo-401k. They put in 4% up to 275K of salary, and match 4% up to 275K of salary. In effect, this gets me 11+11+19K = 41K.

    Scenario 2- contribute enough to max the employer match to the W-2 job (e.g. 11K), and deploy the remainder of the 8K to 1099 solo-401K.  First, max the employer part (as reduces AGI), next max the employee part to the total 19K. So I would get 11+11+11 in the W-2 401K (max of 33K) and another 8K in the Solo-401k, plus the value of the reduction in AGI.

    I presume scenario 2 is the way to go, unless the 1099 income is so small it’s not worth the paperwork.  I looked at schwab – it appears there are no account fees – so doing scenario 2 seems a no-brainer.

    Next step, of course, is maximizing 401K employee contributions and employer contributions.


    #241140 Reply
    Avatar DavidGlennCPA 
    Status: Accountant
    Posts: 60
    Joined: 06/12/2019

    I would put the full $19,000 with your W-2 job’s 401(k).  This gets you the full employer match and could save you from the extra expense of setting up the solo 401(k).

    The solo 401(k) deduction does not go on Schedule C and there fore doesn’t reduce your SE tax.  Instead it goes on Schedule 1 line 28.

    For only $500 a year contribution I don’t see a reason to bother with the solo 401(k).

    If you’re trying to move your pre-tax IRA money into the solo 401(k) to enable back door Roth I’d first see if your employer’s plan will allow you to do a “reverse rollover”.




    David Glenn, CPA | Glenn Advisory | (808) 321-5664

    #241145 Reply
    Avatar Peds 
    Status: Physician
    Posts: 4442
    Joined: 01/08/2016


    #241148 Reply

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