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.
Hi Jim. Was curious about SEP-IRA and 403b contribution limits. I understand that you should deduct the 403b contribution from the 58k amount in the case that you have a solo 401k (per rule 7). Is it also true that you should deduct the 403b contributions from 58k to establish your maximal SEP-IRA contribution? This is of course assuming that you can contribute maximally to a SEP-IRA for the year (>290k etc).
Thank you.
I think it still applies. I don’t think using a SEP-IRA gets you around this weird little 403b rule, but it’s really hard to find definitive answers about stuff like that, so it’s possible I’m wrong.
Yes, I can attest to that. Any qualified plan is subject to the 415 limitation with a 403b plan.
Not sure if people are still reading these replies but figured I’d give it a go as I suspect my accountant will be one of those who doesn’t believe me.
Here’s the backdrop. I’m changing practices at the end of this year and will go from being part of an independent private group to an employed physician. My new employer offers both a 403b and a 457. We’re planning to max those out, in addition to continuing to do our $6k/year backdoor Roth and HSA contributions each year. With that in mind, I’m also going to be doing some side work (previously not allowed by my current practice) and was already thinking about setting up an LLC, but after reading this I am definitely doing so.
What should I consider doing with the LLC, so that I can write some things off and maximize our retirement options? Specifically, what’s the best option for retirement funding given that I’ll also have the 403b and 457 from my employer…a SEP, SIMPLE or 401(k)?
Also, can my wife (who does not have another paying job at the moment) help me with my side work as an employee and if there’s truly work for her to do? If so, would it create additional tax or retirement savings advantages that offset any hassle of setup and maintenance?
Thank you in advance for anyone’s thoughts! This stuff is a bit overwhelming and appreciate all of your experience.
Chris
YOu don’t need an LLC, a sole proprietorship with an EIN can use a solo 401(k) (your best option).
Yes, your wife can help and use the solo 401(k) too and that would probably be worth it.
Awesome, thank you very much for the reply. Any advice on what type of people or even who I need to help set this up? Hopefully our accountant gets it, but figure I’ll at least need people to help with the solo 401(k) setup and also how to employ my wife. I tried connecting with one of the recommended tax folks a year or so ago, but got no follow up on their end after several tries. Feel free to email me directly if easier. Thanks again.
Might be easier to make your wife and owner than an employee honestly. You would then have to file a partnership return though. But you can open a solo 401(k) lots of places.
https://www.whitecoatinvestor.com/where-to-open-your-solo-401k/
Hi Jim,
Really appreciate your guidance here
I am W2 at State of Texas. Currently contributing max
$ 20,500 to 403(b) between trad & Roth.
$20,500 to 457(b) between trad & Roth.
I have a side gig LLC with my otherwise unemployed spouse partner with annual income 150-200k with annual salary set for me 60k spouse 20k and sent to personal bank account every month
For 2022, I contributed to Solo 401k
$ 10,000 towards my Employer portion
$ 5000 towards my husbands ER portion
$16,000 as his Employee contribution
My questions:
1. For spouse’s 2022 EE contribution, I started a cash management account at fidelity and transferred 16k from his personal bank on Dec 27 2022.. It can only be moved to solo 401k after Jan 5 2023. Will that still be considered as 2022 contribution since it’s in the cash account already
2. If I want to employ my 20yr old child in 2023, and contribute to her retirement, can I switch to creating a SEP IRA for 2023 and contribute for me spouse and child as ER only.
3. I can’t decide between solo 401k and SEP, is it wise to do solo 401k on high side income years and do SEP just during the yrs that I’m employing my kid. I know I can do both in the same year
4. Though with popular opinion, I started a solo 401k for 2022, I’m thinking to only do SEP in future years for ease of record keeping especially since I can contribute up to 45k from W2 Roth 403b and 457b. Does that make sense
Can you clarify my qns. TIA
Sounds like you may have overcontributed for your spouse but I can’t tell if your spouse is an employee or a partner nor whether this LLC files as a sole proprietorship, partnership, S corp, or C corp. Not sure I’ll be able to answer your questions without that info. You should also look at this:
https://obliviousinvestor.com/solo-401k-contribution-calculator/
1. If you designate it as such, yes.
2. This is no longer a do it yourself project once you have a non spouse employee eligible for a retirement plan. Hire help here: https://www.whitecoatinvestor.com/retirementaccounts/
3. Generally do solo 401(k) so you can still do a Backdoor Roth IRA and so you can max it out with less income. But keep in mind that the just passed Secure Act 2.0 will soon allow Roth SEP IRAs which will solve the Backdoor Roth IRA pro-rata issue.
4. See # 3 above.
I am trying to determine the exact amount I can contribute to my i401k (for my sole proprietorship) to make sure I do not over-contribute. Since I max out my 401k at my W2 job, then I can just contribute 20% of gross income? Or is it 20% after subtracting out 1/2 of self-employment tax? Thanks for the help!
20% of net self-employment earnings. That is net of all business expenses and 1/2 of SE tax.
And the 1/2 SE tax is the 7.65% employer side that is taken off gross wages after expenses? Because if employee side then there would be no SS tax since paid the max through the W2 job. I know were talking about a very minimal difference here but just wanted to make sure I understood it correctly
The employer just loses out when there are two jobs. The employee can get the half withheld by the second employer back.
Hi Jim,
I’m not sure if anyone is still responding to this thread but I’ll give it a shot. I’m a locum tenens/telemedicine doc who has setup a solo-401k a few years back. My spouse is also a locum tenens doc who has her own solo-401k. We both are independent contractors. We are thinking of starting a medical practice together soon, not sure of the format yet (LLC, s-corp, PC, partnership, etc). We would be the only owners initially, but no employees to start with. We would continue locuming for the foreseeable future. Can we continue with our current setup? Or would we have to combine our solo-401k into 1 plan due to this new practice together? We would be 50/50 equal partners.
I’d probably roll them into a single plan. Contribution limits will be the same. Remember when you get employees that plan will have to converted into a significantly more expensive “real 401k”.
That’s the question, if they plan to hire staff having a single plan makes a lot of sense (and it has to have the option to exclude anyone with less than 1 year/1000 hours vs. just an off the shelf solo 401k document), but if they don’t, they can do the solo 401k plan for a single entity (partnership), that would work since they are spouses. They just have to be careful if the entity would be changing for at least one or both of them, it might be possible to change the entity on each one of their current plans so that they can potentially continue as they were without making any other changes. They would definitely need to contact service providers for the 401k to make sure this will work (usually there is a single solo 401k with two accounts under it vs. two separate 401k plans, but I don’t see why having two separate solo 401ks for the same entity won’t work).
Thanks for your reply. Does the fact that we are currently separate entities matter if we form a LLC together for the new practice? We would still continue to receive our 1099 income separately. Are there any other options available aside from combining plans? Can we exclude the new practice income and just contribute to the solo 401ks separately like we do currently? Just based on our 1099 income? We do not plan on having employees.
New business so a new 401(k) seems appropriate. Ditch the old businesses and old 401(k)s. But either way is going to be the same contribution limits.
Thanks Jim. We both have plenty in our solo401ks already, and neither of us really need the extra complexity of including this new practice income or combining the accounts. Can we just leave the solo 401k’s as-is if we don’t plan on counting the practice income towards contribution limits? For example, if we both are making $200k each doing Locums, then we don’t really need the practice income. Is there Any mandatory rule that would force us to adopt a new combined solo 401k? We are currently separate businesses, and we will continue to operate our Locums gigs as completely separate entities.
You can keep your solo 401ks for 1099 income, you don’t have to set up a new 401k for partnership/new practice income. Usually though it might be a good idea to do this if for example you wanted to set up a Cash Balance plan and you needed enough income to max it out, in that case you would combine both sources to flow into one entity (in that case you could still do separate solo 401k plans, but you would need to have a single CB plan). If you don’t have employees other than the two owners you don’t have to set up a 401k for the combined practice.
Hi WCI community,
I might have over-contribute about $350 to my 401k employee contribution. I have 401k from employer and a solo401k for side gig. I wonder if I can call Fidelity (my solo401k) and ask them to move $350 from employee contribution to employer contribution since I haven’t max my employer contribution yet. If not, what should I do? Thank you and Happy New Year!
When I have overcontributed my providers have been able to reclassify my contribution as a contribution for the next year. See if they can do that for you. That overcontribution can also be withdrawn (with earnings) and you pay tax on the earnings.
Thank you!
I’m sure I’m missing something, but I’m a new partner in a small group practice who is finishing paying off student loans this year. I’m trying to revise/improve my retirement plan and am definitely a novice. I have a 401k with match as well as profit sharing. I’ve been maxing out my 401k, but with the profit sharing I would then be able to increase my contributions up to 61K for 2022 (assuming this does not exceed 25% of compensation paid)? My husband is a low income earner and 25% of our household income could be made up with both backdoor personal and spousal Roth 6,000K contributions + the total 401K contribution. IF this is something feasible, then would I bother investing in taxable accounts if I can make the recommended ‘save 20% of your annual income for retirement’ all in 401K and backdoor Roths? We still have about 20+ years before retirement. Certainly if we wanted to speed up the retirement process I’d revise the plan, but am curious if this option is a reasonable retirement plan (If it’s even possible).
Thanks so much for everything!
No. It’s fine to invest it all in retirement accounts. We did that for many years.
My wife and I both work for large corporates that don’t allow mega backdoor Roths due to the NHCE issue, which forces us to put a lot of our annual savings into taxable accounts. To get more of our future savings into tax-protected accounts, we might do a 1031 exchange to sell some underperforming rental properties and buy properties we can book on Airbnb. We believe the Airbnb income generally counts as “earned income” (it goes on Schedule C) and thus would allow us to set up a Solo 401k.
1) Are there any issues with this strategy?
2) Are there any good providers of Solo 401ks that offer the mega backdoor Roth option? Sounds like there weren’t in 2015, but it’s been a while since then.
1. As earned income, you also have to pay payroll taxes on it.
2. Yes, there are a few out there. It’ll cost you more than just opening up an account at Vanguard or Fidelity without that option, but it can be done and the price isn’t too bad.
My intention is to set up multiple 401K plans so that I can maximize after tax contributions to each. I work as an independent contractor in different medical offices. Can I set up two s corps. One is owned by myself and the other is owned by my wife. I would be the employee of each. Each s Corp would have a 401k where I would maximize pre and post taxes. Does this allow us to work around the unrelated employer limitations? I currently have one 401k and DP. This is assuming that the mega IRA option survives 2022 congress.
No, you can not do that. This would be a controlled group, so you (and your wife) are only allowed one limit, thus one entity/one plan should be sufficient. If you pay your wife a reasonable salary that is high enough, you can make a contribution to a CB plan on her behalf.
Thanks so much for your insight! A new grad doc here trying to make sense of my financial situation, It feels like a massive undertaking since theres so much i dont know..after reading your book and reading some of the supplemental articles im starting to grasp what needs to be done and thinking about firing my advisors since they have failed to educate me and i am starting to lose confidence in their abilities.
I want to make sure that i understood the retirement accounts that i am eligible for..my current situation are:
job 1: W2 employee, company offers a 403b ( i have not opened the account yet, they match 3% after the first yr) with $185K salary
job 2: 1099 (part time) up to 40-45K annually
i have an individual/solo 401 K set up and a roth IRA setup. I also have a taxable investment account
– my advisors has informed me i can only contribute 20% of my 1099 into my individual/solo 401k so only 8k can be put in the account for 2022, they failed to put any amount in for 2021
– Am i allowed 6K into the roth IRA in the form of backdoor roth IRA via traditional IRA since i exceed the income limit to contribute into the Roth directly?
– Also is the 58K total contribution for each job listed? For example am i allowed to have a total contribution of 58K for job 1 (with match) and job 2 (assuming i had the 1099 income)
I am trying to figure out if theres other accounts id be eligible for to maximize my tax deferred account. So far my advisors have only allocated money into the individual or solo 401k account.
Thanks for your help.
Yes you can do a Backdoor Roth IRA in addition to maxing out that 403b, getting the match, and putting $8Kish into a solo 401(k). You might be able to use an HSA too. And 529s and UTMA for kids if you want. But that’s about it. The rest gets invested in taxable.
$58K (now $61K for those under 50 for 2022) is per job. But you can only get it in the employer plans if the employer plans allow it and you can only do it in your solo 401(k) if you make enough. Remember that a 403b and a solo 401(k) share the same limit due to the weird 403b rule discussed in this post. Read that twice because it would apply in your situation if you ever make more as a 1099 IC.
Hi, I have a control group question.
I’m an associate at a solo surgeon’s private practice and W2 employee currently maxing out employee contributions for the 401k. I also earn 1099 income taking call for two local hospitals and have opened a solo 401k and will make the employer contributions for 2022. In the next calendar year, I will become a 50% shareholder/owner of the private practice where I am currently employed, which is an S corp. Will I then be in a controlled group as the employer at the private practice and employer of my sole proprietorship with earnings from independent contracting with the hospitals, and thus not eligible to have a solo 401k any longer?
Based on this information, it does not appear that this will be a controlled group since you control only 50% of the practice entity. If you owned 100% of that entity, you would have had a controlled group situation and your solo 401k plan would not be possible without considering the practice plan (which would mean having a single plan for both entities). With only 50% of the practice, you can have separate plans without any regard for the other entity’s plan.
Great, thanks for your answer. I was debating consulting an ERISA lawyer to review my particular situation based on advice of a new financial advisor I am working with. They charge $250 an hour for this type of work. Is it worthwhile or a slam dunk enough if a case that it wouldn’t be worth the money?
No, this one is pretty easy, no need for an ERISA attorney. A simple google search will find you very basic controlled group rules and examples. Also, the TPA for the current practice plan can advise you instead if you want something on paper. They should be more than able to do that. If not, probably need to find a new TPA for your practice plan once you become a partner!
Good tip, I have requested a meeting with the TPA and will look for examples online specific to my situation. Can you look at example #4 in the original post and explain why those three entities are in a controlled group? It seems the closest to my own. Both entities have two partners so neither has greater than 50% ownership and with the 1099 gig, he is a sole proprietor so 100% owner. What’s the catch?
This is describing a brother-sister controlled group:
• A brother-sister controlled group exists when two or more entities have five or fewer common owners having a controlling interest and effective control
o Controlling interest: 80% or more ownership total among all owners
o Effective control: 50% or more ownership of each entity among all owners
You do not have 80% or more ownership in both entities so this does not apply to you. I’ll verify this example with an ERISA attorney because this example is not clear to me, the sole proprietorship might not be part of the controlled group, just the two entities under 50% effective control.
Great, looking forward to what the ERISA attorney has to say. It would make much more sense if the sole proprietorship is not part of the control group.
Just confirmed, in the example #4, only two entities form a controlled group: the one with employees and the second partnership, not the solo proprietorship. There may be other relationships with the 1099 entity to the partnership with employees, so this can create an affiliated service group, but absent that, only the two partnerships are in a controlled group.
Awesome, thank you for your assistance and expertise!
I have access to multiple retirement plans from my W2 employer, the State of Texas, and a solo401k from my 1099 income. I am trying to see how these affect my solo401k contributions.
Through my W2, I am required to choose either a pension plan (TRS) or a defined contribution plan (ORP) that is labeled a 403(b) and the plan documents say “Each eligible employee … shall participate in the plan and have **mandatory Deferrals** [emphasis added] made on his or her behalf hereunder immediately upon choosing ORP participation.”
They also say I can contribute to another 403(b) called the Tax Deferred Account (TDA). This TDA plan document says “Each employee shall be eligible to participate in the Plan and elect to have **Elective Deferrals** [emphasis added] or Roth 403(b) Contributions … made on his or her behalf hereunder immediately upon becoming employed by the Employer.”
My employer says I am required to reduce my salary 6.65% (mandatory deferral) for the ORP and it matches 6.8%. It then also says I can contribute to the TDA up to the elective maximum $19500 for tax year 2021 as long as the combined ORP + TDA doesn’t go over the $58000 limit for all 403(b) contributions for 2021.
This makes me think the contribution to the ORP 403(b) is a “Nonelective contributions” and the TDA 403(b) is an “Elective deferrals” as defined by the IRS, in order for this double 403(b) contribution arrangement to work.
Here’s the rub: I did not contribute to the TDA 403(b) for 2021. So, if the ORP is truly “nonelective,” then I think I should have $19500 of “Elective Deferrals” still to contribute to my solo401k in addition to my Employer Contribution (~$8000 this year).
Is this correct? Can I contribute to my 401k $19500 if I didn’t contribute to this TDA (my 6.65% in the ORP came to ~$19200)? Have you seen nomenclature like this “mandatory Deferrals” used for “nonelective contributions”? Arrangements like this where a mandatory defined contribution plan is labeled a 403(b) yet we can contribute to a second 403(b)?
The difference in my situation is huge (~$8000 as employer to solo401k vs $19500 as employee and ~$4000 as employer to solo401k). Thanks in advance.
Oh man. I’m not really sure. That ORP doesn’t sound very 403(b) like, but if that’s what they’re calling it….
The good news is that the IRS doesn’t seem to care all that much. I have yet to have a reader tell me they were audited on this point. Doesn’t mean you should cheat, but it does mean you probably don’t need to worry too much about it once you do make a decision.
Isn’t it too late to make an employee contribution to your solo 401(k) anyway? It’s already April. That might solve your dilemma if they won’t even allow you to do it.
But if they will still allow it, I think I would. That would mean you kept the total employee contribution under $19,500 and you kept the total amount that went into all of the plans under $58K, no?
Well, I get mixed messages about the employee contribution 1099 thing too. Generally, it says by 12/31, but my accountant doesn’t have the numbers ran for total profit until now, so it’s impossible to know how much I can put in at that time. Last year, he told us to dump it all in before April 15.
Yes, if I put it in the 401k, assuming it’s my only employee elective contribution, the actual amount I calculated would be $18995 to bring me up to the $58k limit and not over, and under the $19500 employee limit.
Profit should only affect the employer contribution.
I have both a W2 position that allows access to a 403b with match and a nongovernmental 457. For 2021 I contributed the following to my retirement accounts and I want to make sure the math adds up.
403b: ($19,500 employee pre tax contribution; $4,589.21 employer contribution) Total = $24,089.21
457: ($19,500 employee pre tax contribution)
Solo 401k: ($33,910.79 employer contribution)
Backdoor Roth IRA: $6,000
Although my 1099 income would support it, I cannot contribute any more to these accounts as they are all maxed, is that correct?
Thank you.
Yes, too bad it’s a 403b instead of a 401k huh?
If you’re married there may be spousal accounts.
Yep, too bad the 403b is not a 401k.
As an aside, I wanted to point out that I spoke with five CPAs by phone today to clarify the exact question I had for you here – maximum contribution limits to my 403b, 457, solo 401k. Two of them specialize in retirement and one deals exclusively with physicians yet not one was able to bring me to the correct conclusion. It wasn’t until I came across this post that I found clarity.
This leads me to the conclusion that tax law is complex and we need more qualified folks out there to mitigate the headaches.
Welcome to my world.
Thank you.
One last follow up question. For simplicity sake in the above example I listed my Solo 401k contribution as $33,910.79 employer contribution. The reality is that in 2021 I was working under the assumption that I had to make all employer contributions to my Solo 401k by 12/31/2021. Naturally I didn’t want to overshoot so my actual employer contribution to my Solo 401k for 2021 was $33,500 leaving $410.79 of unused retirement space from the $58K maximum between my 403b and solo 401k. I know this is small potatoes, but can I still make a $401.79 employer contribution to my Solo 401k for the 2021 tax year prior to the April 15th tax submission deadline?
My spouse and I started a s corp business (business A) in 2017 in which we started a solo 401k for each of us. We maximized both employee/employer contribution. We are the only employees
In 2020 we started another s corp business (business B) in which we have employees. we started a traditional 401k for the business. we offer 2% matching for our employees. we do not participate in this 401k
is this a control group in which we are suppose to have only 1 401k for both businesses?
thank you for your responses
Yes it is a controlled group, and you should have a single 401k for both businesses (your business A can adopt the same 401k plan if you have enough income to maximize it out while keeping employer contribution reasonable).
Kon,
I’m in a similar situation. I’m an independent contractor and I’ve only had solo 401k plans … until now. In 2014 I set up plan A with business A. In 2017 I set up plan B with business B. In both of these businesses I was the only employee. Now, I’m starting a new business C with additional employees besides myself. The question I have is … do I need to do anything about plan A and plan B (at Vanguard and Fidelity) if I no longer contribute to them and if businesses A and B are dissolved? I do NOT want to roll them over into plan C 401k.
You can move those plans to an IRA (which is not optimal due to backdoor Roth considerations). You can keep those plans around for a few years if there are no contributions. I’ve seen something that can be interpreted in a way that if you no longer have 1099 income these plans might have to be terminated (this is from IRS):
“We haven’t made many contributions to our profit-sharing plan. How will this impact our plan termination?
Although employers are not required to contribute every year to a profit-sharing plan, contributions must be recurring and substantial. If the amount is not significant enough to show an intention to continue the plan, the IRS will treat the contributions as discontinued.
A plan is treated as terminated for vesting purposes if the employer completely discontinues contributions. The employees affected by the discontinuance must become 100% vested. Generally, you must vest all affected employees no later than the end of the taxable year following the taxable year in which you made your last substantial contribution (IRC Section 411(d)(3)).
The IRS presumes that an employer has completely discontinued contributions when the employer fails to make substantial contributions for at least 3 years in a 5-year period. If this happens, the burden shifts to the employer to show that a complete discontinuance has not occurred (Announcement 94-101)”
So in light of that I’d say that the best bet is to move the solo 401k money to your new employer sponsored plan. You might want to consult an ERISA attorney on that, or possibly contact service providers for each of these plans and see what they say, but the above text is pretty clear.
Hello
I was reading the comments and scanning through the article I believe that I have a unique situation
1) Job 1 solo 401k (independent contractor part of the year 2022) so employee and employer contributions
2) Job 2 last 3 months of the year TSP job starts with federal government (starts in September), how much goes into employee and employer side (is it all employee side with some match, not sure just curious). I just want to do a guestimate now so I max out all my options
3) Traditional IRA max limit for 2022 is 6K. Can I have this along with the options #1 and 2
2. Not sure if they’ll let you contribute. If they do, then sure, the employee contributions go in plus probably a little match. But if you already maxed out your employee contributions in the solo 401k, then you can’t contribute to the TSP.
3. Yes
I am going to look at buying your book. It looks really good. I have followed most of your podcasts. Great listening for long drives.
I was wondering for a W2 gig like working at the VA. You are limited to the TSP which is basically employee amount for a 401k and then a government up to 3-5%. You cannot put in as much money as a 401k so you are left with a traditional IRA. Is there any other place to put the W2 income for retirement. I doubt I will have time to do a telemedicine side gig or much of one for time with the VA.
I was thinking of the following based upon your podcast
1) Mortgage (put the extra cash there)
2) Defined benefit plan or cash benefit (does not qualify under W2 income)
3) UMTLA account
4) Custodial account for a child
5) 529 plan
6) Annuity
7) Life insurance policy
8) HSA not applicable at my age
i could not think of anything other than a brokerage account. Are they any other options for retirement that you can think of W2 income, where I could put it
What’s wrong with a taxable account? It’s my biggest “retirement” account.
https://www.whitecoatinvestor.com/retirement-accounts/the-taxable-investment-account-2/
But no, you’re not missing anything unless you get some self employment income on the side or you talk your employer into offering more.
Hello,
Thanks very much for the very helpful resource.
If I had 2 different (and unrelated) W2 employers during the year, each of which offers a 401(k) plan that allows for the mega back door Roth, could I contribute:
Employer 1: $20,500 Roth, $40,500 After-Tax
Employed 2: $61,000 After-Tax
Theoretically, but what usually happens is employer # 2 doesn’t even allow you to use the 401(k) that first year.
Thanks! Assuming both employers allow for contributions in the same year (i.e. switching jobs mid year), just wanted to make sure none of the After Tax contributions would be “employee contributions”.
Well, they are “employee contributions”, but they are “after-tax” (not traditional, not Roth) contributions. There’s no limit on those, other than the overall $61K limit.
Jim, I am very confused and hope you can help.
I’m a w2 employed anesthesiologist in CA and recently took up a locums side gig on the east coast. I make about $420,000 as a w2 employee and will max out for the 2022 year $19,500 employee contribution. W2 employer only does 5% match (from the university $55,000 pay), I do not know, in total, how much I will make from locums work as it is ongoing and scheduled month-by-month (so far, $26,000). I just opened up a solo 401k. How much can I safely contribute to the solo 401k by end of year?
It’s $20,500 in 2022.
20% of your net income can be contributed to the solo 401(k).
Hi Jim,
Im a W2 employee at my full time job. I made partner at this job a couple years ago and have been receiving funding into a 401k profit sharing account that is 100% employer funded (58K per year). I also maxi out my backdoor ROTH IRA as well as an HSA. I am now starting a side gig/locums which will be 1099. Can I put $20,500 in employee and 20% of net income employer contributions into a solo 401k up to 61k total? Would it be wise to make some of that employee contribution to a solo 401 in the form of a ROTH 401 contribution (this 1099 income will be taxed at the highest marginal tax rate).
Sounds like it to me. And it’s $61K this year, not $58K. So ask your employer to cough up a little more!
As far as Roth vs Traditional, that’s a complicated question. More info here:
https://www.whitecoatinvestor.com/should-you-make-roth-or-traditional-401k-contributions/
Hi Jim, Been avid reader of your forums (and book of course) since I was a med student, now in last year of fellowship and looking forward and trying to maximize my possible tax sheltered accounts…is this possible?
W2 hospital
1) 401k employee contributes 20.5k
2) 403b employer contributes 30k
3) 457b employee contributes 20.5k
4) HSA employee contributes 3.5k
1099 moonlighting (making 25k)
1) solo401k (employer match i.e. 20% of net income) ~5k, then convert this megabackdoor roth ira to get up to 61k
My confusion really stems from converting solo 401k to megabackdoor roth ira, is the maximum i can contribute to it 25k? (for a total of 30k)
Thanks
Yes, you could do that.
Yes, you can do a solo 401(k) MBDR IRA (assuming the plan allows it) up to $61K total. But you’d need $61K+ of net moonlighting income.
thanks!
My situation:
1. W2 income $400,000 as hospital employee.
—-> 401k: employee $20,500 with employer match
2. 1099 income $80,000 as unrelated independent contractor
——> open customized solo401k (at mysolo401k.net) and max out $61,000 after tax contribution then —> do Mega back door Roth conversion with entire $61,000.
Is this legal? I’ve read conflicting points between “20% earned income for 1099 solo401k” vs “after tax contributions can max to $61,000 as long as it’s below 100% of 1099 income.”
Thanks
Yes, that’s legal.
Just to clarify, I can technically max my 401k (w2 job) and my solo401k (1099 where I make over 500k)? Since ive used up my entire employee contribution for my w2 associated 401k, can my “employer” contribution be $61k as long as its 20% of my net income?
Currently have one part time (under 500 hours/year) and I own 90%, wife owns 10% of my medical practice.
I have a sep and want to open a solo 401k in ‘23 (roll sep into 401k to then be able to do backdoor Roth too).
Question 1: (I pay myself via W-2 as employee of my biz if that matters). I should be able to make max contribution to this 401k as employer (income >$250k). So 61k contribution as employer correct?
Question 2: I own another unrelated biz that sells medical products (no employees). Minimal overhead, nets $50-60k.
Again 90/10 split ownership with wife.
I believe this is ‘brother-sister group’ rule, true? So can’t open another solo 401k. But what if my wife were to own 90/10, does that change anything? Any way to adjust this biz to allow for another solo 401k so that I can at least contribute to employee max?
Ty
Still a controlled group. If you have any employees, individual 401k plans are a can of worms, I wouldn’t recommend. First, after 3 years even part timers become eligible, so they will be able to join. Individual 401k plans are not designed to work with W2 employees, and it is most likely impossible to design an ‘individual’ 401k plan that will work for you with an employee in the plan. You can include both businesses and open a plan for both (adopting the same plan by both), whether 401k or SEP.
SEP can work for a while as long as the employee works under 2 years (at 3 years they have to join the SEP). Depending on your combined business income you might be able to also set up a Cash Balance plan. Even though your employee is unlikely to get any employer contribution due to their status (they would be eligible to participate, but not get an employer contribution), you would still have an ERISA plan that has to be designed appropriately.
Great, thanks for the confirmation and clarification.
I have been curious about the CBP – but I do not seem to understand the last component of what you noted:
“Even though your employee is unlikely to get any employer contribution due to their status (they would be eligible to participate, but not get an employer contribution), you would still have an ERISA plan that has to be designed appropriately.”
I understand they would have to be eligible (for the 401K and CBP IF they work >500 hours in 3 successive years. But what if they only work 400 hours (for example) per year… I thought I can still utilize a solo 401K, but I wonder about adding a CBP too (given level of income). How would that work?
Thank you.
As soon as they cross the 500 hour boundary they become eligible, and your individual 401k plan simply blows up. They will never be eligible for a CB Plan since you satisfy coverage rules by excluding them altogether. Also, CB plans do not work with individual 401k plans, those have to be designed appropriately so you would need custom plan document for that.
Not sure if my response went through….
I appreciate the summary and clarification.
However, I am a bit confused on your note about if I were to start a CBP that:
“even though employee is unlikely to get any employer contribution due to their status, (they would be eligible to participate, but not get an employer contribution), you would still have an ERISA plan that has to be designed appropriately.”
do you mean that since they work <500 hours / year that they would not be eligible for the solo 401k but they would be eligible for the CBP and in what capacity?
Thank you.
For 2023 I intend to maximize my contributions ($30,000 inclusive of catch-up amount) from my VA job. I also get approx. 5% government matching. I realize I cannot contribute anything to my i-401k/solo-401k as an employee, but I was uncertain if there were any unique tax rules that would prohibit me from contributing up to 20% of my net profit as an independent contractor up to $43,500 ($73,500 max – 30,000 employee) as an “employer”. Is a regular (non-Roth) TSP plan identical similar to a standard employer 401-K for tax purposes regarding multiple 401k rules?
Also, can you confirm for tax year 2023 are backdoor ROTH IRAs (indirect contribution to ROTH via standard after tax contribution to traditional IRA then converted to ROTH) still allowed, and are you still able to immediately convert from traditional to ROTH without worrying about the step doctrine?
1) Employer- A C-corp with four physicians. I am one of the shareholders (25%). There is a profit sharing plan with 11 employees (including the physicians). I max out employee contribution here every year and the corporation provides a profit sharing contribution (generally 37-40 k/year).
2) Side Gig- Sole proprietor- I make about 25-30K/year with survey/consultancy etc. (mostly 1099s), with about 17-20K profit/year.
3) My wife has her own office with S-corp- This corporation has its own 401k plan for her and her employee (1), where there is 3% safe harbor match for eligible employees. My wife maxes out employee contribution here and gets 3% match.
Given this situation, can I add a solo 401k to the side gig and take 20% employer contribution from the profits?
As long as your side gig does not have anything to do with the C-corp, you should be fine.
What about the wife’s business and his sole proprietorship being a controlled group? That’s where it seems to get kind of gray, especially in community property states. I’m not 100% sure if he can get a Solo 401(k) in that situation.
Sorry, I have to be more specific. I’m happy it is gone, but not in 2023. For 2023 you will not be fine. For 2024 you will be.
https://forum.whitecoatinvestor.com/retirement-accounts/374716-secure-2-0-family-attribution-rule-fixes
Thank you, both Jim & Kon.
Oh yes, I vaguely remember seeing that post before. Yes, nice to have it gone soon.
I think I know the answer to this question, but would like to ask just in case. I have an S-Corp that I am the sole owner of. This S-Corp pays me a W2 salary of $78,000 which I use to max out my Solo 401k with $66,000 (2023 numbers). This S-Corp is a management company that manages all of my real estate holdings. This is my only form of W2 income and I am the only employee.
I am wanting to start a second business that would be a single member LLC owning and operating Lead Generation websites. I would like to have an additional Solo 401k with this company and I would be the only employee here too. Is this doable or does it break the controlled group rules? How much can I contribute to each Solo 401k if this is allowed?
I assume you’re making after-tax employee contributions to max that out on just $78K. That’s awfully low for a doctor salary by the way. IRS may not be impressed with that.
Nope. Those two 401(k)s will be considered the same 401(k) and share the same $66K limit.
Thanks for the quick reply. I’m not a doctor. Just a high net worth real estate investor who has found tons of value from your website. Lots of the strategies you discuss are applicable to me and my situation.
Then the salary may be fine. Just realize the IRS expects you to pay yourself a reasonable salary.
Yes sir, thank you. My tax attorney who set up my S-Corp and Solo K signed off on everything. Had a second opinion from my CPA as well.