By Dr. Jim Dahle, WCI Founder
I first wrote about multiple 401(k) accounts back in 2013 in a post entitled Beating the $51K Limit (for which I am still eternally grateful to Mike Piper for the pearl that grew into that post). Well, the $51K limit has since grown into the $70K limit in 2025 thanks to inflation, but all the same principles still apply.
I get tons of questions on multiple employer 401(k)s in our Forum, Podcast, Facebook, and Reddit groups, in the comments sections of the posts on this site, and by email. Heck, this post already has over 1,000 comments! Mostly, I wrote this post so I could copy and paste its URL instead of typing the same old stuff over and over again. (Come to think of it, that was the motivation for starting this site in the first place.)
Can You Have Multiple 401(k)s?
Here's the deal. Many physicians work for multiple employers or work as an employee and either an independent contractor or a consultant. Many others have a side job of another type. Their incomes are far higher than they require for their current spending needs, but they're behind on their savings or otherwise have a desire to maximize the amount of money they can put into retirement accounts, especially tax-deferred retirement accounts.
Obviously, these types of accounts minimize tax, maximize returns, increase asset protection, and facilitate estate planning. Who wouldn't want to get more money into them? However, most of these doctors are surprised to learn that they can have more than one 401(k). That's right,
YOU CAN HAVE MORE THAN ONE 401(K)!
Okay, now that I've got that out of my system, let's make a list of the 7 governing rules for using more than one 401(k):
What to Do with Multiple 401(k) Accounts – Multiple 401(k) Rules
Rule #1 – One Employee Contribution Total
In 2025 the IRS only allows you to make a total of $23,500 ($31,000 if 50 or over) worth of “employee contributions” to all of your 401(k)s (or 403(b)s) no matter how many unrelated employers you have. If you have access to two 401(k)s, you can split this up, but the total must be $23.5K ($31K if over 50) or less.
Rule #2 – $70K per Unrelated Employer
The IRS also only allows you and your employer (which might also be you) to put a total of $70,000 for 2025 ($77,500 if 50+) per year into a 401(k). This includes the employee contribution, any match from the employer, and any employer contributions. This is the same limit for a SEP-IRA (if <50) which is technically all employer contributions. However, unlike rule # 1, this limit applies to each unrelated employer separately.
“Unrelated employers” means that the businesses doing the employing are not a “controlled group.” There are two types of controlled groups:
- “Parent-Subsidiary” Group
This is when a parent business (corporation, sole proprietor, LLC, partnership, etc.) owns 80%+ of another business. - “Brother-Sister” Group
This is where 5 or fewer individuals, estates, or trusts own a controlling interest (again, 80%+) of two different businesses.
So if the two businesses you are involved in aren't a controlled group, and they each have a 401(k), (or a 401(k) and a SEP-IRA) you get two $70K limits. Pretty cool, huh? There are several common examples where this could apply to a physician:
Multiple 401(k) – Example #1
A 40-year-old single physician is an employee of two completely unrelated hospitals. The first pays her $200K per year and matches 100% of her first $5K put into the 401(k). It also offers her a 457. The second pays her $100K per year and matches 50% of the first $7K she puts into her 401(k). What retirement accounts should this physician use in order to maximize her contributions in 2020?
- Hospital 1 401(k): At least $5K (plus the $5K match) = $10K
- Hospital 1 457: $23.5K
- Hospital 2 401(k): At least $7K (plus the $3,500 match) = $10,500
- Plus another $11.5K into either hospital's 401(k) (pick the one with the better investments)
- Plus $7,000 into a Backdoor Roth IRA
- Total: $62,500
Multiple 401(k) – Example #2
A 40-year-old married physician whose spouse doesn't work is a partner in a 100 doctor partnership which offers a 401(k)/Profit-sharing plan in which he can “self-match” up to the $70K limit. The partnership also offers a defined benefit/cash balance plan with a $30K limit. He makes $300K practicing medicine. He is also the sole owner of a website on the side that makes $300K per year and has its own individual 401(k). Both 401(k)s offer a Roth option. What is the maximum amount he can put into Roth accounts in any given year without doing a conversion of tax-deferred or after-tax dollars?
- Partnership 401(k)/PSP: $70K, of which $23.5K can be Roth*
- Partnership DB/CBP: $30K, of which $0K can be Roth
- Website Individual 401(k): $70K, of which $23.5K could be Roth* if none of the Partnership 401(k) money represents an “employee contribution”. Otherwise, $0K Roth.
- Personal Backdoor Roth IRA: $7,000
- Spousal Backdoor Roth IRA: $7,000
- HSA: $8,550
- Total: $192,550 of which $37.5K can be Roth*
*Note that Secure Act 2.0 has made some changes which will allow the possibility of Roth matching contributions starting in 2023.
Multiple 401(k) – Example #3
This 52-year-old married physician (spouse doesn't work) is an employee of a hospital where she is paid $200K. She has a 401(k) with a set $20K employer profit-sharing contribution (not a match) and the hospital pays most of the premiums on a non-high-deductible health plan. She moonlights across town as an independent contractor and is paid on a 1099, where she earns $100K and has opened up an individual 401(k). The hospital 401(k) has terrible investments and high fees. How should she allocate her retirement savings in order to best use these options?
- Hospital 401(k): $20K employer contribution
- Individual 401(k): $31K employee contribution (50+) + 20% * $100K = $20K employer contribution = $51K (technically slightly less due to Rule # 5 below)
- Personal Backdoor Roth IRA: $8,000 (50+)
- Spousal Backdoor Roth IRA: $8,000 (50+)
- Total: $87K
Multiple 401(k) – Example #4
A 40-year-old single physician is in a business partnership with one other physician and they have several employees. Due to hassles and the costs of their employees, they have opted to use a SIMPLE 401(k) for their practice. He makes $200K. He also does some consulting work on his own as a sole proprietorship where he is paid on a 1099, about $50K per year. He and his physician business partner recently opened up another business where they sell a medical device. They are the only owners of both the practice and of the corporation that sells the device (which has no employees). He makes another $50K from this company of which $25K is salary and $25K is a “distribution” from the S Corp. What kind of retirement set-up should this physician do?
- Practice SIMPLE IRA: $16,500 employee contribution plus $6K (3% of salary) employer contribution: $22,500
- Unfortunately, these three entities are part of a “controlled group”, so he cannot have a separate retirement plan for either of the other two entities that ignore the employees in the practice. The presence of a SIMPLE IRA also makes it tough to use a Backdoor Roth IRA due to the pro-rata rule.
- Total: $22,500
Rule #3 – Employer Contributions Are 20% of “Net Earnings from Self-Employment”
When calculating the employer contribution for a SEP-IRA or an Individual 401(k), you use your “net earnings from self-employment”. This includes any amount used for an employee contribution, but excludes the amount used for S Corp distributions (those aren't “earned income” and so can't be used for retirement account contributions) and the amount used for the employer half of the payroll taxes (same as the self-employment tax deduction).
The employer contribution in an individual 401(k) and a SEP-IRA is exactly the same (for those under 50), but since you can also make an employee contribution into an individual 401(k) (and 401(k) money isn't included in the backdoor Roth pro-rata calculation), a 401(k) is generally the better option for the self-employed, even if it is slightly more complicated to open (and must be opened in the calendar year rather than before tax day of the next year). The possibility of a Roth SEP IRA starting in 2023 could provide another way around this rule.
Note that an employee owner of an S Corp is limited to 25% of W-2 compensation as an employer contribution.
Rule #4 – You Only Get One SEP, SIMPLE, or 401(k) per Unrelated Employer per Year
Each unrelated employer should only have one of these three types of accounts for each tax year. You can technically have more than one, but they share a combined limit. However, you could open a SEP-IRA for your self-employment income in March 2025 for tax year 2024, and then open an individual 401(k) in June 2025 for tax year 2025 if you like. Remember that just because you are the sole owner of two separate businesses doesn't mean you get two different retirement accounts. Those businesses are a controlled group.
Rule #5 – These Rules Have Nothing to Do with 457s, IRAs, or HSAs
457(b)s, Backdoor Roth IRAs, and HSAs all have their own separate limits that have nothing to do with the limits for 401(k)s, 403(b)s, SEP-IRAs, and SIMPLE IRAs. Putting more into a Roth IRA doesn't mean you can't still max out your 401(k).
Rule #6 – Catch-Up Contributions Also Allow You to Beat the $66K Limit
Many accounts have catch-up contributions if you're old enough (usually 50 or older, but 55 or older for HSAs). Roth IRAs have a $1,000 catch-up, HSAs have a $1,000 catch-up, and 401(k)/403(b)s have a $7,500 catch up. That $7,500 catch-up is in addition to the $70K limit, so if you're over 50, you're self-employed with lots of income, and you make your full $31,000 employee contribution to your individual 401(k), the $70K limit becomes a $77,500K limit. Note that 457(b) catch-ups and 403(b) catch-ups work slightly differently.
If 401(k)s are so great, why just stop at one?
Rule #7 – 403(b)s Are Not 401(k)s
Many physicians have access to a 403(b) by working for a hospital or public entity. There is a unique rule for 403(b)s, however, which will prevent many doctors who use a 403(b) at their main job from maxing out an individual 401(k) on the side, at least if they own 50% or more of the company for which they have an individual 401(k) (and they probably do). It doesn't make much sense, but neither do many tax and retirement plan rules out there. Basically, your 403(b) at work, unlike a 401(k), is considered to be controlled by you. So you are stuck with the same 415c limit of $70K (see Chapter 3 at the link). So if you put $23.5K into your 403(b) at work, you are only allowed to put $70K-$23.5K=$46.5K into an individual 401(k).
My Accountant Doesn't Believe You
Obviously, having access to multiple 401(k)s is an unusual situation among Americans in general, even if it is quite common among doctors. As such, an unbelievable number of accountants (and especially their clients) have a misunderstanding of the rules noted above, particularly the one about having a separate $70K limit for each unrelated employer. However, taking a look at this article on IRS.Gov written in layman's language, you can see this is true:
Overall Limit on Contributions
Total annual contributions (annual additions) to all of your accounts in plans maintained by one employer (and any related employer) are limited. The limit applies to the total of:
- elective deferrals
- employer matching contributions
- employer nonelective contributions
- allocations of forfeitures
The annual additions paid to a participant’s account cannot exceed the lesser of
- 100% of the participant's compensation, or
There are separate, smaller limits for SIMPLE 401(k) plans.
If that's not enough for your accountant, you can simply go straight to the actual code sections in question, in this case, 415(c) (where the $66K limit comes from, originally $40K). Be sure to scroll through subsections (f) through (h) where the relevant examples are used:
(f) Combining of plans
(1) In general
For purposes of applying the limitations of subsections (b) and (c)—(A) all defined benefit plans (whether or not terminated) of an employer are to be treated as one defined benefit plan, and(B) all defined contribution plans (whether or not terminated) of an employer are to be treated as one defined contribution plan.
Note how it says all defined contribution plans OF AN EMPLOYER are to be treated as one plan. Section (g) reads similarly:
(g) Aggregation of plans
… the Secretary, in applying the provisions of this section to benefits or contributions under more than one plan maintained by the same employer, ….with respect to which the participant has the control required under section 414 (b) or (c)…shall…disqualify one or more…plans…until such benefits or contributions do not exceed the limitations contained in this section.
Huge fan of yours, James – thank you for inspiring me.
Briefly,
#1 – Main W2 job: made 127k income on the W2 and participated in the company 401k and maxed out the 19.5k employee pre-tax contribution. They matched 14k.
(I do not own this company and am just an employed physician. And they do not offer after tax contribution for me to do a mega back door).
#2 – 1099 job: sole proprietor as a locum doc with an EIN.
85k income. Net profit after expenses 60.7k.
Opened a traditional solo 401k on Etrade.
Is it correct that since I am maxed out on 19.5k Employee contribution on my W2, I am only allowed a maximum employer contribution is 85k x 0.9235 x 20% = 15.7k?
Or can I contribute the 57K maximum since its a separate entity
$15.7K.
If you set it up right, you could do additional MegaBackdoor Roth contributions up to the $58K limit though. That might be well worth additional hassle and cost to you. These folks can help:
https://www.whitecoatinvestor.com/retirementaccounts/
Maxing out 457, 403(b) 19.5 and 58K respectively at W2 job.
Starting some 1099 work this year.
What are options to put away money in self directed retirement account given I have a 403b plan and not 401k?
Self-directed 401(k) is your option. Here are some folks that can set one up:
https://www.whitecoatinvestor.com/retirementaccounts/
Thanks for the reply.
I thought that I could not use a self directed 401k because my 403(b) is considered self owned and is already maxed out
Maxed out at $58K? Then yes. Maxed out at $19.5K? Then no, you can still put some money in an i401(k).
Hi Jim (and any other knowledgeable solo401k advisor), Wanted to ask about my particular situation. (You might remember me from my recent post/question in another of your blog posts- about my wanting to invest with DLP using solo401k funds. I got clarification from them about the lowered $100k minimum because I was referred by WCI. They said minimum TOTAL DLP investment is $100k, but that I could invest$50k minimum per fund x 2.)
Anyway, here is my new issue. I already invest with FPL (thanks to you!) and they manage my retirement $ in a previously-set-up “generic” TD Ameritrade solo401k account (as opposed to a special self-directed one). To now also invest with DLP, I have to use Fidelity or Schwab because DLP doesn’t work with TDA yet. I thought I would now have to open a self-directed solo401k in order to have solo401k accounts at both brokerages. However, my financial advisors are telling me that I should be able to open up a “generic” Fidelity solo410k along with having the existing one at TDA, without having to set up a self-directed solo401k (two different brokerage accounts but all under one plan). Yet when I called Fidelity, they said this is NOT possible without re-stating the plan and creating a new self-directed 401k. Can someone confirm what I really need to do in order to have solo401k buckets at more than one brokerage firm? Basically, is each brokerage firm’s generic solo401k considered its own plan and thus I WOULD have to re-state to have both accounts? Would love to not go to additional troubles if not truly necessary. Thanks!
It would be weird to have two solo 401(k)s. Since you’re already paying FPL, have them sort this out for you so you’re not playing middleman.
So for year 2020; If I had two employers that are unrelated, one W2 employer where I put in the max for employee contributions (19,500), then with my solo 401k for my independent contractor income, the max contribution from the employer side can be a full 57,000 that I can put in myself on the employer side (instead of 37,500) – is that correct (assuming my independent contractor income is at least 285,000 which would mean 20% is 57000)?
Yes.
Hi,
Just so I understand this:
Are you saying if I’m a W2 employee for a company and am able to max out my 401K with my employer (say $19,500) and I own a successful consulting company where I have the ability to put away $58000 in a SEP; doing both are completely fine?
Yes. Of course, instead of a SEP many would use a solo 401(k) (employer contributions only, which are the same as SEP contributions) in order to also be able to do a Backdoor Roth IRA without getting pro-rated.
I am working as a full-time locum till May. I make enough to make an employER contribution of 58k into a sole proprietor Solo 401(k) for 2021. Since I will be 50 by the end of this year, I wanted to place an additional catch up of 6500 as employER contribution into this solo 401(k) but Schwab said this cannot be done unless the 6500 comes from employEE contribution. Is that right?
As I will begin as a full-time employee for a hospital from June onward, I want to contribute the maximal employee 24500 into the hospital 401(k) for the year 2021. This is to be in compliance with the single employee limit of 24500 across all 401(k)’s.
I believe it is, I’m sorry.
Hi Jim. You may have already answered this question somewhere, but I have not found it yet. I understand Rule # 7 – 403(b)s Are Not 401(k)s which limits effectively doubling up on the 58K limit for many physicians. However, I am wondering what about the spouse in this scenario. Lets say, for example, that my wife and I both have 403(b) plans from our respective different employers. My wife has also established her own sole proprietorship for which she earns consulting income. I understand that if she maxes out the 58K from her workplace 403b, she is unable to contribute to a SEP-IRA or solo 401K for herself due to the rule relating to a controlled group. However, if I performed legitimate work for her business with the appropriate tax documentation, could I then contribute to an SEP-IRA for myself up to the limits based upon the income that was generated? What about if I also maxed out the 58K through my own workplace 403(b)? Would that change your answer? Thanks for you amazing contribution to personal finance and to the bolgleheads forum!
Not 100% sure of the answer on the first situation but I think you’re okay. You definitely couldn’t do it with your own 403b maxed out at $58K.
Hi Jim,
Can you shed some light on this subject. I have a solo 401k setup for my telemedicine/locums 1099 income from multiple companies. I am a sole proprietor for these jobs. I plan on opening a family practice in the next year with my wife (fellow physician) and structure it as a multi-member LLC. Assuming that I have significant 1099 income going forward AND have the practice income, what kind of retirement plan should I setup for the LLC? My wife and I will be the only owners, but we might have employees down the line.
If this is an off the shelf solo 401k, then you have to be very careful if you also plan to hire employees. The issue is that unless your solo 401k has a custom plan document with specific eligibility, vesting and employer contribution provisions, as soon as you hire an employee, they will be immediately eligible with no vesting and potentially pro-rata profit sharing. So for that reason you would need to set up an ERISA 401k if you know that you will potentially hire someone during the year (basically, a 401k plan you would set up if you had employees already). You will not be able to maintain a separate solo 401k even if you have side income at that point due to controlled group rules (once you hire an employee). Depending on how old you are and what your net income is, you can either do a 401k with profit sharing or a 401k + Cash Balance plan to maximize your contributions. Ideally you would want to be at least 37 or so for the CB plan part, but it also depends on your wife’s age and income.
Solo 401k works great if no employees. When you get some, you’ll have some tough decisions to make. No longer a do it yourself project. You’ll have to choose between a 401k, a SEP, a SIMPLE and nothing at all. These guys can help:
https://www.whitecoatinvestor.com/retirementaccounts/
I own 3 different C-Corps and an LLC. 1 of the C-Corps was my first business which I used a ROBS 401K rollover to fund the startup. Technically my 401K owns the shares of the C-Corp but I do not make contributions to it. My LLC owns a commerical property and rents to another C-Corp I own as well as another renter on the property. Can I start a Solo 401K for the LLC and contribute the maximum yearly up to $64K as I’m over 50? There are a lot of rules for the ROBS I have to file the Form 5500 yearly and don’t know if would conflict with me starting a Solo 401K? I would just use my existing 401K but that business is my main income source to live on and I can’t save that much there. The other C-Corp does not provide income yet as all profits are going to debt. Thanks for any advice.
Oooh complicated situation. But your question is easy.
Real estate income doesn’t qualify as earned income though, so you can’t use it to make retirement account contributions.
I have a solo 401(k) for my IC physician job (I own 100% of the business), to which I have been putting money in, and doing megabackdoor roth IRA conversion, since 2019.
this year, I started putting money in my 403(b) at my moonlighting day job, and plan to max out at $19.5K.
I told my document maker regarding your Rule # 7 above, & that I can only put 58k-19.5k=38.5K in my megabackdoor Roth IRA conversion this year, and he said that not true, since they are not part of the ‘controlled group”, and I don’t own both businesses. so, technically I can still put $58K in my megabackdoor roth IRA (If I make enough SE income, obviously). I got confused by it. can you please clarify? thanks. below is the link.
https://www.mysolo401k.net/impact-of-403b-day-time-job-contributions-to-solo-401k-contributions-including-voluntary-after-tax-contributions/
Here’s the paragraph from the link in that paragraph of the article:
Participation in a qualified plan. If you
participated in a 403(b) plan and a qualified
plan, you must combine contributions made to
your 403(b) account with contributions to a
qualified plan and simplified employee pensions of all corporations, partnerships, and sole
proprietorships in which you have more than
50% control to determine the total annual additions.
You have control of your IC “company” so it must be combined with the 403b contribution for the 415c limit.
I think Mark is mistaken. I don’t blame him though. I was mistaken about this for years (had to update this article after this point was made to me years after I originally wrote it.)
Will the IRS catch it? Doubt it (almost no one understands this), but I do believe the rule is as stated.
I’m trying to figure out if this applies to my current situation. I have only 1099 income to an LLC I formed that is taxed as an S-corp. I technically have 3 sources of income and each of them is 1099. Each of them is staffed by Teamhealth, but I am paid by 3 different corporations.
1) Main gig is 1099 in a Banner hospital ED. I have set up an Individual 401k through Vanguard and it is maxed out both employee and employer contributions to $58k. My pay stub says “EP Southwest”
2) Side gig #1 – Hospital Observation unit – I do rounds at the same hospital as my “main gig”, but receive a check from a different corporation “Quantum Healthcare”. I make a total of about 15k from this source.
3) Side gig #2 – Micro Hospital from a difference healthcare system, Abrazo, but also staffed by Teamhealth. Check from “Emergency Group Corporation”. I make about 30k from this source.
My question is can I do multiple 401k’s? Am I limited because Teamhealth staffs all three sources? Or is my LLC technically MY employer at all 3 locations so I am only able to have 1?
Thanks in advance
If you get paid on a 1099 for all three, it’s one solo 401k.
If you get a W-2 from one of them, you may also be eligible for their 401k.
Friend who is a nurse and contributes $19,500 to 403b. He’s also a successful poker player who makes 6 figures at that in W2G income. I assume that qualifies for an individual 401k? Would he be able to do $38,500 there or subtract out hospital match? Thanks
It depends. If it is his job then it is earned income and subject to payroll taxes and eligible to be contributed to a retirement account like an individual 401k. If the answer to that question is gray, then it’s a question of whether it is worth the extra payroll taxes to get the retirement account.
Situation – TPs is not physicians but Amazon employees.
1. Maximize 19500 pre tax
2. Maximize after tax 16k (10% of salary)
3. 22,500 is on the table for after tax mega back door Roth IRA. How to take advantage of that (The taxpayers are also S corp owners 50-50) Via S corp? or any other method?
Does the plan allow for after tax contributions and in plan conversions or in service withdrawals? If so, you can do the MBDR. If you are self employed on the side, you can also do an individual 401(k). If it is set up for MBDR contributions, you can also do those there.
Thank you for all of the knowledge.
I am an employed physician at a non-profit hospital. My employer provides access to a 401 K plan with 5% match contribution and 1% basic contribution. I am also eligible for a 457 plan. I maximize contributions to both.
On the side, I run an LLC taxed as an S-corp. My non-working spouse is an employee. My primary income comes from my employed physician position. The LLC brings in about 30K per year. I am going to set up a solo 401K for her in which we maximize both employee and employer contributions. We place a large amount of money (from my primary employment) monthly into a non-qualified retirement account. We already maximize our back door roth contributions.
-In an attempt to be more strategic with the money placed in our non-qualified retirement account, can we place post tax income (not received from the LLC, but rather from my primary employment) into her solo 401K and then roll it over into a mega back door roth, or does the income have to come from the LLC?
-If not, are there other creative strategies that I can utilize?
Thank you
Income has to come from the LLC and it has to be income earned by her as an employee since she isn’t an owner of it.
Not sure your set up is the best one for your situation. Read this for more info:
https://www.whitecoatinvestor.com/why-an-s-corp-doesnt-mix-well-with-a-w-2-job/
I am in sales and I am independent contractor so I have my own business and have my own 401k. My wife is a interior designer and also has her own business and her own 401k. Can we both have our own business and our own 401k’s? Thanks in advance.
Sincerely
Roberto
Yes. But you can’t put $58K into hers and $58K into yours and have her put $58K into hers and $58K into yours. It’s just $58K total for each of you.
If you’re in a community property state state, there’s an additional complication that basically requires you to use the same 401k or at least treat the employees of both companies as if both businesses are the same business. More info here:
https://401ktv.com/pension-problem-spouses-owned-company/
I hope you can shed some light on my situation. I’m under 50. I have a single member LLC with no employees (all income flows to my schedule c) and I’m also a partner in a partnership organized as an LLC with another individual. We are 50/50 partners. This partnership also has no employees. Both businesses are not related. My goal is to maximize retirement savings as Roths. The idea is to have solo 401Ks for each business and do conversions to Roth if possible.
My understanding is that both entities are NOT part of a controlled group. What’s the best way to maximize the retirement savings as Roths? Thank you.
Have the partnership start a 401k and open a solo 401k for your LLC taxed as a sole proprietorship and never hire an employee. Make sure both 401ks allow for Roth 401k and Mega Backdoor Roth IRA contributions (i.e. after-tax employee contributions with in-plan conversions or in-service rollovers.)
So to clarify, in this scenario, on the solo 401k, I can contribute $19,500 employEE ROTH contribution and $38,500 as an after-tax employEE contribution that I then Mega Backdoor to my Roth IRA?
And on the partnership 401K, since I can no longer do an employEE contribution (I am making it on the solo 401k above), I can contribute $58,000 as an after-tax employEE contribution that I then Mega Backdoor to my Roth IRA?
Total retirement savings – $116,000 (plus a regular back door of $6,000 toa ROTH IRA)
I’m assuming that “after-tax employEE contribution” is not the same as “profit sharing employER contribution” and is not subject to a percentage of net oncome, right?
Thank you.
If your net income is too low to max out PS with the solo 401k, then yes, you can do after-tax and convert to Roth. For the partnership 401k you can still do after-tax if you want since you have no NHCE employees. If your net income is higher for the partnership vs. solo 401k, you can potentially do the $58k as PS (25% of W2 or ~20% of 1099/K1), or the $58k as after-tax. After-tax is not like PS, that’s correct. And I’m assuming you are also doing backdoor Roth on top of that.
If you are in the highest brackets though (35%-37%), you should be instead doing 100% tax-deferred, and conversions to Roth should happen in retirement (depending on when that is, especially if you are retiring early). The tax drag is too much for high bracket docs to justify doing Roth in the highest brackets, the math is quite clear on that.
Yes and yes and yes.
The actual amounts you can convert to Roth and the types of conversions you should be doing depend on several factors, including your respective incomes from both businesses and where the plans are set up. For example, if you have enough income to max out profit sharing, you don’t necessarily need after-tax contributions. Also, your partnership 401k is not going to be a ‘solo’ 401k. And if you don’t use a record-keeper for either plan, you would need to open separate accounts for the converted amount, and keep track of it as well. A TPA would have to be involved due to the complexity of these transactions (definitely for the partnership plan). I’ve outlined some ideas on what can be done here:
https://www.whitecoatinvestor.com/mega-backdoor-roth-with-erisa-401k-plans/
The mechanics can get tricky depending on where your plan is, so you will need to establish the right way to do everything on the platform of your choice to avoid issues. And most off the shelf ‘solo’ 401k plans would not allow you to do Roth conversions, so you will most likely need to have a custom plan document for your ‘solo’ plan (and hire a service provider who can draft this for you).
Kon, if the goal is to immediately convert contributions to a Roth, what would be the point of maximizing profit sharing contributions (income permitting)? Wouldn’t it just be simplest to use EmployEE after-tax contributions to the maximum on each plan?
Yes, income permitting. I agree that after-tax would probably be best for that.
Kon, if the goal is to immediately convert contributions to a Roth, what would be the point of maximizing profit sharing contributions (income permitting)? Wouldn’t it just be simplest to use EmployEE after-tax contributions to the maximum on each plan?
If you’re trying to lower your current tax bill due to being at peak earnings, tax-deferred is great.
If the goal is to immediately convert to Roth, or to convert shortly thereafter, tax deferral isn’t really in play here. I would question the strategy of converting to Roth while in the highest brackets in the first place, rather than in retirement, but there may be cases when doing so now vs. later is a good idea. This is why a Cash Balance is also a great option for those in the highest brackets but who also want to convert some of the 401k money to Roth – you get both the deduction and the Roth. I would still think that anyone in the highest brackets should be all tax-deferred until retirement unless they will be making even more money in retirement than they are making now.
Thank you for this great article. I have one job, which only offers a 457 plan. If I set up a side job and just earn a nominal amount of money, would I be able to contribute the full $19500 employee contribution to a solo 401k? Or does that contribution have to come from the earnings from the side job? The thought is to set up the side job just to get the solo 401k. Thank you.
No. You can’t contribute more than you make at the side job.
Thank you. So if I make $19500 (or more) at the side job, I can make the full $19500 employee contribution to a solo 401k?
Yes, since you haven’t used your $19,500 employee 401(k) contribution in any other 401(k) or 403(b). The 457(b) of course is a completely separate limit.
Thanks very much for your help
I switched recently from a 1099 to 2 W2 positions; one offers a 401k and the other a (better) 403b.
1) I maximized my solo 401k at 58k early this year. Can I still do a $19,500 contribution to the 403b, avoiding Rule #1 if I call my solo 401k a purely employer contribution?
2) If I want to contribute to the 403b, does Rule #7 comes into play here? Does it mean I can’t contribute anything at all or does it even apply since my 401k contribution was maxed out first, in January?
Thanks
-Bill
1. N/A because of # 2. But if you’re talking about the 401(k) instead of the 403b and you call the entire $58K contribution an employer contribution and your new 401(k) allows for contributions this year, then yes, you still have an employee contribution to use.
2. Yes, that’s what it means.
Pardon my lack of sophistication: I did go and try to read through CH3 and the rest of IRS publication 571. I could not find the section that says employee 403b contributions are considered an employer contribution. Could you point it out?
It doesn’t say it’s an employer contribution. It says your total limit (403b + i401l) is $57K ($58K in 2021). It’s the 4th paragraph of Chapter 3:
Participation in a qualified plan. If you
participated in a 403(b) plan and a qualified
plan, you must combine contributions made to
your 403(b) account with contributions to a
qualified plan and simplified employee pensions of all corporations, partnerships, and sole
proprietorships in which you have more than
50% control to determine the total annual additions.
Is an independent contractor allowed to have multiple solo 401(k)s as long as the total contribution limit does not exceed the $19,500 employee and 20% of income employer contributions? For example, in the year 2021, I have already contributed the employee portion to a solo 401(k) with a financial advisor. I have learned enough to start managing my own 401(k); can I open another 401(k) at Vanguard in 2021 and contribute 20% of my income to this account?
To make the question simpler, can an independent contractor open and maintain multiple solo 401(k)s at different companies (ex. Vanguard, Fidelity, Financial Advisor) as long as they don’t exceed the 58,500 limit in total, combined with each other?
I suppose so, but what’s the point? Why not just put more into the one you have? If you want to move away from the advisor, then I would do so at the start of the new year with a rollover if needed.
I suppose this isn’t a great reason, but in case I wanted to manage my own for a little while and compare it to the advisor’s at the same time. As opposed to opening a new 401(k) and immediately rolling over all of my funds into it.
Would you start at the beginning of the year for tax purposes? And the term “rollover” applies to any movement of funds from one account to another?
I’d do it on January 1st just for simplicity’s sake. But I wouldn’t use a solo 401k for a little advisor experiment. In fact, I wouldn’t do the experiment at all.
Yes, a rollover is a transfer.
I see. Well, I’ve been reading and learning from WCI content for a while. I just finished the WCI and Investor’s Manifesto books; I’ve been watching what the advisor does (a reasonably diversified portfolio with iShares S&P 500 index, international indices, and bond indices) and doing my own experiment with a taxable brokerage account at Fidelity. I think I have a good idea of which index funds and ETFs I’m comfortable using at this point. So I’d like to start managing my own and forego the 0.98% advisor fee.
Ok, just confirming.
Easy way to save 1% for sure.
Yes sir. And as a 28 year old, I’ve begun to realize how much that will save as the years add up. So I’m going to open up my own 401(k) and get started.
Thank you so much for taking the time to answer questions and help. I really appreciate all of your information and advice.
I have a unique circumstance that I would appreciate advice on.
Primary job: I am a salaried, W-2 employee of a private practice that matches into my 401K AND gives me profit sharing. I defer $19,500 with the remaining match and profit sharing getting me to $58,000 annually.
1099 job: This needs context. My above employer contracts with a hospital to provide inpatient coverage. Jointly, they both have equity stake in ownership of a telemedicine company that is its own LLC (my employer owns 40% and hospital owns 60%) that services outlying community hospitals. I do have a tripartite agreement with both my employer and that hospital, though my salary is paid only by the private practice. I make a 1099 income of around $2-4K monthly, so >24K annually. I am paying estimated taxes so far this year, but just stumbled on these 401K rules and questioned if I can open another individual 401K.
Based on the above, my concern is if these 2 incomes are exclusive enough in the eyes of the IRS. Can I open an individual 401K for the 1099 income. If so, how much and can I retroactively pour into it from my earnings so far this calendar year?
You own one company. The private practice owns the other. Totally different ownership. You can have an individual 401(k).
Long time admirer here. I was super bummed to hear that congress may be doing away with the MBDR, especially since I just set up my solo 401k with employee fiduciary last year. With the potential of this all going away in the new year I figured I’d make my contributions now. I’m trying to crunch the numbers but hit a snag.
My main job is a W2 position where I can put away my 19.5k with no employer match (sucks considering the 37% marginal bracket). I’m also making about 80-90k this year in 1099 income from moonlighting.
Suppose I made a $16k profit sharing contribution to my solo 401k. Does that mean I could contribute $42k as a MBDR or do I have to subtract the 19.5k I made to my W2 401k, resulting in 22.5k MBDR eligibility? I feel like if I’m reading the article correctly then it should be $42k since I would have a cap of $58k per 401k…(that is if my W2 employer did any profit sharing contribution). Thanks!
Yes, no need to subtract the $19.5K UNLESS IT’S A 403B at the W-2.
Can a single person contribute to more than one 457b plan— work at two separate hospital systems and each has a 457b plan.
If so, is the limit 19.5k x 2 or like the 403b/401k is limited to a total of 19.5k between the two?
Thank you
Yes. You can have more than one with separate $19.5K limits. In practice though, I don’t think I’ve ever run into a doc eligible for two. Are you?Sorry. Bad advice. Here’s the truth:
it appears from Treasury Regulation 1.457-5 that the limit is per person for the year.
https://www.law.cornell.edu/cfr/text/26/1.457-5
§ 1.457-5 Individual limitation for combined annual deferrals under multiple eligible plans
[…]
(b) Limitation applied to participant. The individual limitation in this section applies to eligible plans of all employers for whom a participant has performed services, including both eligible governmental plans and eligible plans of a tax-exempt entity and both eligible plans of the employer and eligible plans of other employers. Thus, for purposes of determining the amount excluded from a participant’s gross income in any taxable year (including the underutilized limitation under § 1.457-4 (c)(3)(ii)(B)), the participant’s annual deferral under an eligible plan, and the participant’s annual deferrals under all other eligible plans, must be determined on an aggregate basis. To the extent that the combined annual deferral amount exceeds the maximum deferral limitation applicable under § 1.457-4 (c)(1)(i)(A), (c)(2), or (c)(3), the amount is treated as an excess deferral under § 1.457-4(e).
Thanks to Mike Piper for helping me find that.
Yes am a unicorn
Practicing intensivist that has just begun Pall Care Fellowship at a local University
Unusual but fits for my career! THx because
I have not been able to find the answer to that question!
JL