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.
I have a question if I meet the rules, as I could not get any clarity from my accountant. My primary practice is pain management, where I am a partner in an S-corp (now up to three partners). We draw a base salary of $x/month. We get profit sharing based on production and % of ownership (for designated health services) which has been significant in the past, like up to $3x/month. We have a company sponsored 401k. I contributed my maximum ($18k in 2015) each year I was eligible and the company matches 100% up to 4% of income ($10.6k in 2015). I also have a separate LLC, where I provide anesthesia services unrelated to my pain practice. I have a self employed 401k where I contribute 20% of my income. My questions:
1. Can I still contribute $24.4k (53-18-10.6) into my company sponsored 401k?
2. Does the contributions to my self employed 401k reduced the 53k max, i.e. can I contribute $53k to both? I have never been close to the income level in my LLC for 20% of my income to >/= $53k.
3. Is there anyway to retroactively contribute funds to the years I did not hit the maximum, as I only learned about this in the last week?
1. You can contribute $53k in each of the two plans, with the only limitation being the salary deferral ($18k) that is shared between both plans. So if you put $18k into one of the plans, the 2nd plan should be profit sharing only. You can instead have the $18k go to your solo 401k, but then you have to make sure that your practice plan allows you to max out with profit sharing only (not all do).
2. No, but you can contribute after-tax up to $53k in profit sharing only (~20%) into the solo 401k. So as long as your profit is $53k or above, you can put away 20% in profit sharing and the rest as after-tax contribution that can be converted to Roth.
3. No. It does help getting good proactive advice for moderately complex situations such as yours. I would also make sure that your 401k is a low cost plan with no asset-based fees (either administrative or advisory). Chances are you can have a ‘brokerage only’ plan where every participant opens their own account if you only have 3 partners. However, that’s not possible/preferable if the practice has any non-spouse employees, in which case you need a record-keeper. To allow after-tax contributions into your solo 401k you will need a custom plan document.
Thank you for the reply. I am still a little fuzzy on your response 1.
1. I currently am putting 18k in salary deferral in my pain practice’s 401k (and we do have 30ish other employees), and the solo 401k (since I am the only owner/employee of my LLC) is only profit sharing, i.e. I am only putting 20% of my net income from the LLC into this plan. Am I doing that you are saying and not violating any tax codes.
2. I will need to read more about the conversion to Roth, as I started this business to help some friends who had a need for anesthesia, so the money is essentially irrelevant for me – it basically gave me a vehicle for extra tax deferred retirement.
3. I think we may have too much advise and not enough communication – we have our 401k/disability insurance guy. We have a corporate accountant, and I have a personal financial advisor who I have been working with before I started residency. Problem is sometimes we get conflicting advice, and I end up following my financial advisor, as my older partner and I have very different perspectives on personal financial planning.
1. You can put away $18k into your practice 401k. If your 401k is also designed to have profit sharing, you can put away up to $53k into your practice 401k. With 30 employees and 3 partners, I’m not sure that would be a good idea though. You can put away $53k into each of these plans, but salary deferral ($18k) is shared by both plans.
2. My comment was about how to put away $53k into a solo 401k plan without having more than $53k in net profit.
3. Sounds like it. It also does not sound like your 401k guy is a fiduciary – he probably makes commission from selling the plan (and plan investments) to your practice. Corporate accountants don’t know very much about retirement plans, and I’m not sure about your personal financial adviser. Doctors and dentists have very unique needs, so you need to make sure that 1) your adviser is a fiduciary and always acts in your best interest, 2) they are knowledgeable about retirement plans and multiple plan rules and 3) they are compensated by hourly or flat/fixed fees vs. AUM fees (which again create a big conflict of interest, not to mention a huge added cost for doctors who will accumulate significant portfolios).
1. No. Not if the plan doesn’t allow it.
2. Ideally, yes. If the companies qualify as being unrelated, and I think they do since you only own 1/3 of the other one, and you make enough at each one to get $53K in, and the plan documents allow it etc. But if you’re only making $100K in your LLC, then you’re only going to be able to contribute $20K.
3. No. Wouldn’t that be convenient.
I have LLC. can I setup solo 401k without running payroll?
without payroll how much I can contribute?
You don’t need an LLC to have a solo 401(k), but you do need a federal EIN. You cannot set it up if you have employees unless the only employee is your spouse plus other employees you can exclude from the 401(k) (such as your kids.)
Max contribution is $53K, but that depends on your income and other retirement plans and relationship between companies. Not enough info to tell you what your max contribution is.
Hi,
I have llc and 2 solo 401k(etrade and Amritrade)
Q1. Can I contribute to both as both are solo?
Q2. can I contribute more than total 53k ?
Q3. Is it possible to contribute to solo401k without running a payroll every month? If Yes how?
.
Why do you have two solo 401(k)s. You almost surely should not have that. Why not combine them? I hope you’re not contributing to both in the same year. That could get really messy.
1. No.
2. No. If they’re both solo 401(k)s, then the companies they are each tied to are by definition related to each other, so share the same $53K limit.
3. Not sure what you mean by “running a payroll.” I don’t think I ever “run a payroll” and I’ve been using a solo 401(k) for years. Can you explain what you mean by running a payroll? If you really have a bunch of employees you’re paying you probably can’t use a solo 401(k) anyway. If it’s just you, why are you “running a payroll?” Just transfer some money out of your business account to your personal account as an owner draw.
Very interesting article. My husband and I aren’t doctors, we are computer programmers; but I found this article through a search of “multiple 401ks”. Combined, we gross over $200,000 a year together so we are trying our best to shelter as much income in retirement accounts as possible. My husband works as a W-2 employee for an employer who has a 401(k) where he can contribute about $15,000 per year maximum due to 401(k) rules concerning highly compensated employees. We both work from our home.
I take all of my income as a 1099 contractor, and I have a solo 401(k) through Vanguard. My husband does work for the business, maintaining my firewall, hardware, etc. so that I have the ability to earn income by writing software for a client; but in previous years, we Haven’t treated him as an employee of my business. We are both over 50. Since I am making enough income this year to fully fund my $24,000 employee contribution, as well as 20% of my net business income as employer contributions, and there is still money left over, we were researching the ability to fund contributions in my solo 401(k) for him. From what I understand, I can contribute 20% of my net business income as an employer contribution for my husband as an employee, as well as up to $9000 in employee contributions for him to a max of $59,000 for each of us (not that I’ll be seeing enough income to come anywhere close to that).
Do you agree with my assumption?
It’s 20% of what you’re paying him (technically net of the employer share of payroll taxes, usually 18-19%), either as an employee or as a partner plus $3K unused “employee” contribution. This assumes he’s under 50. If over 50, that goes up to include the catch up contribution.
Hi white coat investor, thanks so much for a great website and book. I’m a fellow getting ready to choose between three practices. The place I’d really like to work offers a 401k plan but there is no match from the company. Am I allowed to decline the company 401k plan and choose a different vehicle for retirement investing and get more than 18k put away?
If you are a partner-track employee, you might eventually have a say in how the 401k plan is administered, depending on the size of the practice, of course. So one thing to consider would be whether you will have any ability to influence the direction of the 401k plan at the practice. This way you might be able to add profit sharing to allow you to max out your contribution at $53k. If you don’t participate in their 401k, unless you get paid with a 1099 you don’t have any other choices (other than Traditional IRA and after-tax).
No. If you’re self-employed, you get to pick your own. If you’re employed, you get what the employer offers plus an IRA/Roth IRA/Backdoor Roth IRA.
Thank you for the amazing advice. I have read all the comments because I learn so much more detail about unique circumstances. I get a W2 from my employer and maximize 401k contributions of 18k with a match at the workplace plan.
I also have a question:
I received and continue to receive K-1 income from a surgery center and 1099 income for consulting. I think the best thing to do is to make a sole proprietorship for myself and request an EIN for myself immediately to be able to have surgery center distributions and consulting fees paid to the EIN rather than my personal SSN. That way I can put 20% of this income into a solo 401k.
For the income that I earned prior to my EIN and was given on my SSN, can I still consider this as my sole proprietorship income and calculate 20% of the non W-2 2015 income for solo 401k purposes, or only K1 distributions and 1099 income that specifically have the EIN going forward the rest of the year?
Thanks!
2015 income above means 2016 sorry for the mistake lol living in the past-
I would use all of the sole proprietorship income. It is all legitimate self-proprietorship income. You don’t need the EIN to file taxes, only to open the individual 401(k).
Bear in mind the K-1 income IS NOT from your sole proprietorship and so can’t be used for an individual 401(k). Also, bear in mind that distribution income isn’t earned income, and so can’t be used toward what goes into an individual 401(k).
That might change if the partnership doesn’t have a 401(k) or something (mine does), I’m not 100% sure. But if it does, you have to use that, not your own individual 401(k).
The 1099 consulting income makes sense, thanks. I’ll calculate the entire year’s consulting income then put 20% into a solo 401k once I get my EIN.
The surgery center does not have a 401k plan, and gives monthly “distributions” based on profits from the previous month from cases, not capital gains. This is given as K-1 income. So I can’t put 20% of this into my solo 401k? This is true even if I have surgery center checks distributed to my EIN rather than SSN? I thought K-1 income was treated similar to 1099.
Thanks.
If you haven’t used your employee 401(k) contribution elsewhere, you can use it in the individual 401(k), so that would be $18K + 20%. But you still can’t use your non self-employed income.
K-1 is self-employed, earned income from a partnership. If there is no partnership 401(k), then you probably can include it in your self-employed income but you’re probably limited to just one $53K total 401(k) contribution. You might even be able to open a 2nd one if you don’t own much of the partnership, but I’m not 100% positive on that.
Bear in mind a K-1 distribution is earned income, but an S Corp distribution is not.
“I received and continue to receive K-1 income from a surgery center and 1099 income for consulting. I think the best thing to do is to make a sole proprietorship for myself and request an EIN for myself immediately to be able to have surgery center distributions and consulting fees paid to the EIN rather than my personal SSN. That way I can put 20% of this income into a solo 401k.
For the income that I earned prior to my EIN and was given on my SSN, can I still consider this as my sole proprietorship income and calculate 20% of the non W-2 2015 income for solo 401k purposes, or only K1 distributions and 1099 income that specifically have the EIN going forward the rest of the year?”
What might be a good idea is to have an entity (not sole proprietorship), but an LLC (possibly taxed as S corp, depending on whether that provides a net tax benefit) and have both your 1099 and your K1 income go to that. You can then contribute 20% (or even 25% if you give yourself a W2 from the LLC taxed as S corp). In addition, you can then also have a Defined Benefit plan (even if you are in your 30s) with the combined income (if it is high enough to warrant this type of plan).
This is something that your CPA should help you with, especially having all of the 1099 income going to a single entity. Not only will you be able to do some advanced tax planning, but you can also maximize your retirement plan contribution by using the right entity.
With regard to the “K-1 distribution is earned income”, here is the question:
I am working on a locum basis and have a solo 401(k) with Vanguard and maxed out.
From my investments (private equity and real estate), I also received and will receive (when exit the private equity investment) K-1 distributions. So can I open a separate solo 401(k) for these non-locum earned income from investment? If yes, how do one separate them as the income all come to one single SSN?
You can’t contribute anything from real estate investments into a retirement plan. The answer is no. But you can have a combo plan – 401k plus DB and depending on your age and your income you can contribute a significant amount on top of your 401k contribution.
I was assuming he was doing surgery in the surgery center. But you might be right.
It’s easy to decide what can go toward 401(k)s- earned income. If you’re paying payroll taxes (SS and Medicare) on it, it can go toward a 401(k). But rents, stock dividends, capital gains etc, nope. That’s unearned.
A K-1 can represent earned or unearned income, just like a 1099.
Do 401a contributions count towards the 18k limit for employee contributions to employer 401(k)s and 403(b)s?
My fellowship program requires that I contribute 7.5% of my salary to its 401a. The investment options in the 401a plan are pretty terrible. I also moonlight at a hospital connected to my fellowship program and am paid via a W2. That hospital offers me a 403b and they match 3%. The investments in the 403b are excellent.
My question is, does the 7.5% salary that i have to contribute to the 401a subtract from the 18k total that I can contribute to 401(k)s/403(b)s?
No. Separate limit.
Unfortunately, 401a, 401k and 403b all have the same 402g limit of $18k. The Finance Buff has this one wrong. However, I believe you can opt out of 401a, and they can’t require you to make a contribution. Typically the employer is the one who is making the 7.5% contribution – otherwise why bother? In some cases employees are also able to make a contribution that is fixed (and irrevocable), but it should be up to you. Please find out exactly what the rules are.
From what I am reading the 7.5% contribution by me is required since this allows me not to pay social security.
https://usfweb2.usf.edu/human-resources/benefits/terp.asp
Yes, looks like this is a good deal for you actually. Might consider a ‘guaranteed pooled account’ instead then – it might be better than having high cost investments.
I’m not sure that’s right. I’m pretty sure I’ve seen lots of folks with 403(b)s and 401(a)s. I think the 401(a) contribution is consider all employer so it doesn’t count toward the $18K limit. It may count toward the $53K limit though.
Right, except in this case it is all done by the employees. So we are talking about 402g limit – this is common with all of these plans (except for the 457b). If it was employer contribution only, then yes.
Just to clarify, 401a and 401k and 403b all share the same 415 limit. Maybe if we had different employers, things would be different, but the rule of thumb is that 401a is just like a 401k (despite all of the differences in plan provisions) and 401k shares the 415 limit with 403b, just like it shares the 402g limit.
I think I’m “this” close to making sure I understand the separate 401s issue.
Academic hospital-
401(a) – 12% contribution to max of $32,400 in 2017
403(b) – $18k in 2017
457(b) – $18k in 2017
I’ve got additional income from consulting as well. My understanding is that I would subtract the $18K from my 403(b) contribution amount from the $54K 401 contribution cap. I would not subtract the 401(a) contribution because it is an employer contribution.
So I would be left with $36k of room for a self employed 401(k). If I had $10k of income I could defer all of it as an employee contribution. On $20K, I could put $18k as employee and $2k as employer… Am I understanding this correctly?
It’s $55K for 2018 and the employee contribution for 2018 is $18.5K, so it would be $36.5K into the solo 401(k), assuming you had enough income to do that. But it would be only employer contribution since you burned your only employee contribution in the 403(b).
ahhhh! it’s clear now. thank you so much.
Hi WCI,
My question is regarding doing a s401K for a spouse employee.
I’ve posted here before but basically my background is: employee physician with 403B/457B maxing out both and doing backdoor Roth for wife/ myself. I also have an S corp and get 1099 income and I will be doing a s401K later this year (25% as employer contribution).
My wife works for me part time (earnings will be less than 10K this year) as an employee. She is not part of the S-corp. Can some of these earnings be used to open a s401K for her?
She has an old 401k from a previous employer, currently works as a freelance graphic designer and has her own LLC for the design company.
Can we put some of her earnings from my S corp into a s401K for her? If so, will that s401K need to be opened under my S Corp?
Thanks for any input.
Yes. She can use her self-employment income toward her own solo 401(k). If you wish to also include her in your solo 401(k), I believe you can do that as well. And yes, it would need to be under your S corp EIN.
Hello WCI. I recently found your blogs and have learned so much. Am working on rolling over SEP and another IRA to my employer based plan so I can do a back door roth without prorata issues.
But I have new questions after reading this blogs.
I have an S chapter and employ myself and 3 other staff. Until this year I had done SEP for myself from S chapter. ‘But now my staff has been with me for 3 years and funding them at the same % is cost prohibitive.
I also work part time for a university as W2. I am maxing out my 403b there 18,000 a year. Not eligible for employer match.
Can I open a 401k (or simple IRA) for the 4 of us with the S chapter and still max out my W2 403? I have been told no and that 18,000 is my personal max between the two situations. But perhaps this is incorrect? Can I do 18,000 for w2 403 in addition to 401k /simple IRA for the S chapter?
Any other suggestions?
Thank you.
Yes you can. You can max out your own 401k with profit sharing only. SIMPLE IRA won’t be possible with a 403b since in that case your $18k would be shared. It will depend on your salary. Also, your plan would have to be designed right to minimize employer contribution, and this will depend on your demographics. A design study would have to be done to see how low your salary would need to go to 1) maximize your contribution and to 2) minimize employer contribution.
Hello WCI,
I am employed by a university and max out on both a 403b and a 457, plus just opened up a Backdoor Roth (which I learned about through you), and enrolled in the family HSA. I have no other retirement accounts.
Here’s my question: I have earned a small amount of 1099 income through some freelance editing work, $2700 in 2015 (probably will be about 2K in 2016). Is there any benefit to opening a solo 401k, which I understand would only be 20% (or $540), as I am only eligible for the employer contribution due to having maxed out the 403b? Would a 401k be helpful to have if I ever left my current employer?
Yes. You could put something like $500 in it and then you have it available later to roll 401(k)s into should you ever need to do that. Presumably your individual 401(k) would have lower costs and better options than your work 403(b), but that’s not always true. Plus, you may have more self-employed income later.
Only you can decide if it is worth the hassle. But you better get started as it takes a little while and you need to do it before year end.
I’m having a little trouble convincing my CPA that I can do this :), but honestly I am not 100% clear about the “unrelated” piece myself.
In our case, my wife and I have an SCorp with a Solo 401k where she “assists” and is a minority owner. She also gets a 1099 as she’s an independent contractor with another firm (which is really her main job). It seems that she should be able to set up a separate Solo 401(K) for her 1099 work and make the full 53K contribution in both Solo 401ks. However, my CPA says that these are not “unrelated”, and hence 2 x 53K contributions are not possible.
If he’s correct, would it help to have her just as an employee of the SCorp but not a part-owner?
Yes. A sole proprietorship is a disregarded entity, so even if your wife actually sets up a corporation (which would be the right way to avoid a single 415 limit), the two businesses are still very much related because both of you control 100% of one and your wife controls 100% of the other. If however, your wife controlled less than 50% of one business and 100% of the other one, and the other 50% was controlled by an unrelated party, then we could have had two 415 limits.
However you might be able to have the income from the 1099 go to your main entity and if that’s enough income, you might be a good candidate for a Cash Balance plan where both of you can contribute significantly more than to a 401k, so that would fulfill your need to shelter more money from taxes.
As employee she’d still have a single 415 limit. Both of you are still deemed to have 100% control over your practice, so it is still a controlled group however you slice it. It would be better to maximize both of your W2s for the S corp for the purpose of maximizing a DB plan, so if you are old enough (at least 35) to take advantage of it, that’s what I would recommend.
Kon,
Thanks very much for the explanation – that does make sense.
Just to confirm…
I work as an employee at Job A and will contribute 18k in 2016 with no employer match to my crappy employer sponsored 401k.
I work as an independent contractor at Job B and will make ~$50k this year. From what I’ve read and understood, I can make an employer contribute approx. 20% of the $50k = ~$10k into a solo 401k at Vanguard.
I have until filing taxes in 2017 to contribute to the solo 401k.
Is this correct?
Also, I worked the first half of 2016 as a resident with no 401k employee contribution, but the employer match to a 2015 contribution was distributed in 2016. Does this employer match still count toward my 2015 limit?
Lastly, I’m maxing out my employer 401k(unmatched), backdoor roth, hsa, and planning for a taxable account. Is there anything else I’m missing?
Thanks so much.
If there is no match on your employee 401(k), you could just put your employee contribution into your solo 401(k). Same total contribution and better options.
Yes, you can certainly make employer contributions up until tax day.
Not sure what you mean by “distribution.” That usually refers to taking money out. If you mean your employer put in their contribution for 2015 in 2016, yes that counts toward 2015.
Ask HR if there is anything you’re missing. You can also do a personal defined benefit plan, but probably not worth it with only $50K of IC income and a taxable account isn’t the end of the world.
Thank you for response!
I agree that putting it all in my solo 401k would probably be best since the expense ratios for my employer sponsored 401k are terrible and there is no match…but am I allowed to opt out of my employer 401k and contribute the 18k into my solo 401k from my employed earnings, plus top out whatever I can with an employer contribution from my 1099 work? If it’s already too late this year, am I able to rollover the 18k that’s already in my employer sponsored 401k?
Your plan probably doesn’t allow in-service rollovers, but check.
Of course you’re allowed to contribute your employee contribution to any 401(k) you qualify to use. If your employer isn’t going to provide an incentive to use his plan (a match, low fees, or good investments) and you can avoid it, might as well.
Ah I see. So a quick follow up question, will I need a separate solo 401k for this? As in one vanguard solo 401k for my 1099 work, and one for my employed work? Thanks again.
Let me correct/clarify my question…looks like I’d need an IRA for my employed position? Would this be worth running into the prorata rules for backdoor conversions?
You lost me. As far as your employed position goes, you’re limited to what your employer offers. For your self-employed work, you can get your own individual 401(k). You get two $53K limits and one $18K limit. Since all your employer will let you put in is your $18K employee contribution, and you can put that into your individual 401(k) with no decrease in total contributions to both plans, might as well do that.
Thanks, I think I understand now. I would like to clarify…so for this upcoming year, I should just max out my individual 401k for my 1099 work with the 18k max employee contribution plus roughly 10k of the 20% “employer” contribution also from my 1099 work(~50k earnings/yr) and have no contributions to my employed position since there is no 401k match and I’ve used up my 18k contribution. Does this sound correct?
Yes.
Logistic question: I just opened an individual 401k for my 1099 work. Would I be able to contribute both my $18k plus my employer $10k(20% of income) at the same time, and from the same bank account? Does it matter which account(s) the money comes from?
As a related questions, how important is it to have separate accounts for my personal checking and 1099 income? I understand that it would be easier to track expenses with a dedicated business account, but my 1099 work is through a locum tenens company, so most of my expenses are paid for and not deductible. Also, I’m under the impression that separating my personal from business accounts would not protect my personal account from being tapped in the event that I were sued and I lost…is this correct? Are there other factors that I should consider in deciding whether or not to open a business account?
Yes. You can do both employee and employer contributions into your i401(k) at the same time from the same account. It doesn’t matter which account the money comes from to Vanguard or Fidelity. I think it’s a good idea to have a separate bank account for your business. Your 1099 paychecks get deposited there, you pay your i401(k) contributions from there, you can pay your estimated taxes from there, you can pay any other business expenses from there etc. Required? No. But it’s a good idea. You’re right that there is no significant additional liability protection just from having another bank account. It’s mostly just to separate things.
I own two business as a “Sole Proprietor” and they both operated under my name. The businesses are unrelated. The first business is a self-employed software developer, the second business is self-employed personal care manager. I receive 1099-MISC for each of my business and I expect to earn about 50K in each in 2016. I already have Solo 401K plan for my first business. My question is – do I need to open a second solo 401K plan for my second business to maximize the total contribution for both plans 2016.
Those two businesses ARE RELATED by virtue of the fact that you are the sole owner of both. Sorry. Your limit is $53K total if you have enough income. But since you’re only making like $100K, you’re only going to be able to put $18K + 20% * $100K = ~$38K total. That all assumes we’re talking about 2016 and you’re under 50.
This is my situation
1- full time job 401k- w2(employee 18k and employer 9k)
2 – self employment s corp no w2 ; 1099 from one of the other companies but billing under my own company.
With the above equation can I maxout my contributions especially since I don’t have a w2 income from my self employment
$27K in # 1’s 401(K) + ~20% of what # 2 generates.
There’s a lot of comments here, but I don’t recall seeing the spouse exemption for a single owner company w/Solo 401K. It magically doubles the “owner-employee” contributions ($53K for each person) subject to the usual income caps for company contributions. If the income supports it, one company can effectively contribute $106K to retirement account(s) for the husband and wife.
That’s what we do. Although we’re “owner-owner.”
There is no exemption of any sort. If your spouse can not be justified to get a salary high enough to max out a solo 401k, you are an audit risk. Remember, if your 401k plan is disallowed (which it would be if it turns out that your spouse’s salary is excessively high), you will have to pay back all of the taxes (potentially with penalties). Don’t play this game unless your CPA can justify your spouse’s salary in an IRS audit. Better yet, get a written opinion to make sure that you are doing it right. If your spouse co-owns your business, that’s one thing, but if their job description is of someone who’s making $50k for equivalent services, they can’t get $200k for it.
The current solo 401k custodian is charging arm and a leg. What’s the best low cost / stable / good roi ones out there. Any recommendations from any one ?
Vanguard, Fidelity, Schwab, Ameritrade, any one of these will work just fine. None charge any fees and give you access to low cost investments.
A 401(k) is an account. It has no return on investment. The investment inside the account provides the return.
“Exemption” refers to the fact that a spouse won’t be considered an employee and violate the “no employees” aspect of opening a solo 401K.
What’s your opinion on self directed solo 401 k ?
If you want to invest in something that requires a self-directed solo 401(k) (like real estate) it’s fine. But bear in mind costs are usually higher than what you would get at Vanguard, Fidelity, eTrade etc.
What higher costs are you referring to? The initial plan setup is a few hundred to a couple thousand dollars for the plan documents. There aren’t any other fees beyond that aside from the direct costs associated with making an actual investment. Those should be the same regardless of where the money is coming from with the possible exception of discounted fees for large account holders at Fidelity, Vanguard, et. al.
These accounts require a lot of supervision, and you would definitely need a Third Party Administrator who knows what they are doing. I see that there are lots of places that ‘sell’ these types of accounts, but I would advise against buying a cheap off the shelf plan document, and instead hire your own TPA (and consult with them prior to opening this type of account to understand the benefits and limitations). The costs are definitely higher because if you hold real estate (or other investments that are hard to value) you’ll need to do expensive valuations from a reputable company every year, and your TPA has to monitor your plan for compliance – it is not a set and forget type of plan.
There are definitely legitimate uses for self-directed 401k plans, but I would suggest that plain vanilla 401k should provide the bulk of one’s investments. If someone is using their 401k as a piggy bank for speculative investments, that is an issue all by itself because to build wealth one needs to diversify and hold a good amount of assets that are relatively safe, and if all of one’s assets are in a speculative investment this can be a recipe for disaster.
The entire point of a self-directed 401K is eliminating the need for a 3rd party to be involved and it certainly doesn’t involve much work from my perspective. Certainly much less that using 3rd party trustees when I was raising money from individuals for real estate transactions. There’s an annual renewal document along with the standard IRS form for accounts with over $250K. Nothing else.
I disagree with your thoughts about how 401K funds should be used. That’s entirely up to the person putting away the money. Your speculative investment might be their next Uber investment. Many company sponsored 401K plans are extremely limited in the range of investments that are offered. A slate of only five mutual funds wouldn’t be unusual and might not even include an index fund at all. You have ZERO control over the plan guidelines as a typical employee. If the self-directed fund is held at Schwab or Fidelity, it generally offers access to all of their available funds.
Other useful benefits of self-directed plans include the ability to loan up to $50K to yourself without penalty, fund your own startup, fund real estate deals and make private loans to individual and entities. The entire point is flexibility in the same manner that starting your own 401K plan and funding it to the tune of $53K annually is far better than accepting the standard employee plan of $18K with a 3% contribution match.
Not everyone would agree that getting returns over 7% involves taking on significant additional risk. Hard money loans secured by real estate can yield 15% APR with points paid up-front. The note gets paid as expected or I pay $500 for a boilerplate foreclosure proceeding. Or I might have the title placed in escrow as part of the deal terms for new investors without a track record.
Control is a tremendous mitigating factor when it comes to risk.
I am trying to better understand rule #7. I work at a public hospital. I have a 457 that I put $18k in. I also have a 403b to which I contribute $18k and my employer $35k. I do consulting work on the side that I get a 1099 for. Am I able to open a solo 401k and make an employer contribution? Or since my 403b is fully funded am I not eligible? Thanks!
My understanding of your situation is that you are not eligible to contribute anything to an individual 401(k).
Thank you for answering. Am I correct that I can still open a solo 401k in order to roll over an IRA into it, and then just not contribute?
I don’t know. You may be able to do that technically. I think I would try to at least make a small contribution that first year you open it.
Excellent post and commentaries as usual. But I am getting a little lost in the weeds, so I would like to ask about my scenario for 2016—
Employed doc and I made an $18,000 Roth contribution to my employer sponsored 401K (no employer matching or contribution).
I also worked a separate locums tenens job for 1099 income.
I set up in 2016 a solo 401K, given my eligibility to do so from the locum tenens work. I also plan to do a backdoor Roth contribution (if I understand correctly, I have until April of 2017 to make a backdoor Roth contribution for 2016).
Questions:
(1) What is the maximum amount I am allowed to put into my solo 401K for 2016?
(2) What proportion of my 1099 income can I put into my solo 401K for 2016?
(3) If in 2017– I loose the employee 401K contribution from my work as an employed doc (practice change), but get income from ownership in a non medical LLC business (contemplating starting), what are the maximum amounts I would be able to contribute to my solo 401K for 2017?
Thank you!
1) ~ 20% of your self-employed earnings up to a max of $53K
2) ~ 20% of your self-employed earnings up to a max of $53K
3) Only earned income can go into retirement accounts. Not sure if your LLC is earned income or not. But without the employee contributions at work, you can contribute $18K (if under 50) + ~20% of your self-employed earnings up to a max of $54K.
Sorry if this was already covered in the prior comments.
I work as a full time Locum Tenens doc (1099 income). If I worked for two different hospital systems but was placed and payed through the same Locum Tenens agency, would this qualify me for one or two Individual 401Ks?
Thanks!
There is one business with two customers so only one 401(k). The hospitals are the customers and the business is you. Now if you were an employee at one of those hospitals, the situation might be different.
Got it, thank you.
What about if you work for two different locum tenens companies? Can you have two separate independent 401Ks in that situation?
How about working as a physician (1099 such as locum tenens) as well as having unrelated income from book sales? Can you have two separate independent 401Ks?
If they’re both paying you as a 1099, then there is still one business (you.) If you’re an employee of one, different story.
Thanks! Got it.
As WCI said, your 401k contribution limit from multiple 1099 jobs is still $54k. If all you are looking to do is to contribute $54k x 2 into a retirement plan, and you are at least 35 years old and believe that your situation will be stable for at least 4-5 years AND your total 1099 income is going to be around $400k or so, then you might be able to contribute about this much into a 401k plus Defined Benefit combo plan (and more as you get older). If that’s indeed the case, then I would recommend doing an LLC taxed as S corp and paying yourself a W2 of $270k to max out such a plan. As a 1099 contractor you have the ability to utilize this type of plan, but you have to be absolutely sure that your situation won’t change next year – these plans are designed to stay around for at least 4-5 years, but you can easily contribute $100k or more (depending on your age and income).
Another way to contribute more into a 401k plan is to add your spouse to the payroll and contribute on their behalf (just make sure there is a job description on file for them).
Unfortunately (or maybe fortunately 😉 ) I am 32 and single…
Also my situation will not be stable because I am not sure if I will stay on 1099 for the next few years or settle into a permanent position (or some combination of both).
Good to know for the future, though.
Thanks!
Have a clarification question. Basically, I am trying to figure out if the EMPLOYEE contribution ($18k) across all accounts for a Solo 401(k) is in any way limited by the 1099 income? (vs the EMPLOYER contribution, which is 20% of 1099 income per above).
Simplified situation:
Medical resident receiving 1099-MISC yearly for $600 “reimbursement” attending a conference (this is a fixed fee that they pay and they don’t actually require or ask for any receipts, etc., so I am assuming this is why they send a 1099-MISC as “income” rather than some other non-taxable mechanism).
Residency program has 403(b) with NO MATCH and not best investment options. With my $600 total 1099-MISC income per year, can I open a Solo 401(k) with, e.g., Vanguard, and contribute $18k to my SOLO 401(k) if I contribute $0 to my not-as-good-investment-option residency-program 403(b)?
Actual situation:
They give $500 check and DON’T send 1099-MISC, although they talk extensively about how they will send it in the letter and require a W-9 form. I believe this is because IRS requires 1099-MISC only with $600 minimum, but I am required to report any such income over $400. I DID report it on my 1040 last year, still thinking about this year’s 1040.
Also, what happens to the Solo 401(k) if I no longer receive a 1099-MISC (or have no 1099-MISC income) in a given year?
Thank you!!!
First of all, you’re required to report all income. Not just $400+.
Second of all, if it is reimbursement, it isn’t necessarily income. It’s a business expense of your employer. That might mean it is neither taxable, nor useful for contributing to retirement accounts. I am not clear on what this is. But they don’t have to send you a 1099 for reimbursement, so I guess maybe it is earned income.
If you don’t put any money in the 403b, and this is really earned income, then you can contribute $600 to to the individual 401(k). Up to $120 of that can be employer contribution and the rest employee.
But no, you can’t put $18K in there. You didn’t earn $18K in your business. A 401(k) is connected to a business.
[Update/Correction 2/8/17: After further discussion and research, it sounds like the item being discussed in this discussion is “Other Income” that goes on Line 21. As an employee without a business who doesn’t itemize, you’re not going to be able to deduct this at all. Still, better to get the money, even if you don’t get all of it due to taxes.]
Thank you so much for the clarification re the maximum amount that can be placed in a solo 401k in terms of the total of the employer and employee contribution (in my case, same as 1099 income).
I don’t know exactly why the payment is categorized as 1099 misc. just to clarify, this is a $500 check from a specialty medical organization given to all residents who attend the conference and pick it up by that organization. I believe the money comes from a corporate donor (not a pharmaceutical company).
I realize that I am supposed to the report the amount and that is why I did so last year. I also know for a fact that not a single one of my co residents, all of whom received the same check, reported it.
The complicating thing is that my expenses just for flight and hotel are MORE than $500. Last year, I tried to report is as self employment income in TurboTax and deduct travel and lodging expenses. However, my net business income was a loss, and TT warned me of a high risk of audit so I just reported it as personal 1099 misc income without deducting anything (have standard deduction for myself and wife which obviously is more than $500).
Any thoughts?
Thank you!
Yea, don’t be afraid of taking legitimate deductions out of fear of an audit. If you’re worried about a negative income, just deduct enough to cover hte income.
Thank you for your thoughts and your idea to deduct only until it is $0 income and not full amount where it is a loss. Thank you!
Personally, I’d deduct the loss. But if you’re worried it’ll trigger an audit, then feel free not to take the whole deduction. Businesses can lose money for 2 of their first 5 years without being classified as a hobby.
Thank you for the helpful information re businesses being able to lose money for 2 of their first 5 years without being classified as a hobby.
Ok. I guess I am still a bit confused.
Here is the exact text from where we sent in our W-9s (with the specialty medical organization name replaced with ***):
“NOTE:
Any resident receiving an Attendance Grant will receive a 1099-Misc Income Form from the *** that will be reported to the IRS in January 2018. However, receipts for meeting costs for items such as air travel, hotel, and transportation should be retained and may be used to offset the income reported on the 1099. Please consult with your personal tax advisor for instructions on how to report these items on your tax return.”
Again, I am actually losing money by going to the conference, so this $500 is only offsetting my expense but does not cover them.
However, my confusion is about how this is really a “business”/self-employment pay (filed using Schedule C). My goal is not to make money, but to attend a conference without having to pay too much, no? Ultimately, is that really a business? I am just trying to figure this out because playing around with TurboTax like I did last year would cost me $40 to upgrade (bought Deluxe this year) and also I want to know what to tell the IRS in case I get audited (obviously, this is unlikely over such small amounts, but I want to make sure I am doing the correct thing so that I don’t buy Home & Business for $40 and then end up not really using any of the features like I did last year).
Thank you!
Remember I’m not a tax advisor of any kind and certainly not a CPA.
But, if you’re getting a 1099 you’re in business. Your business is MK, MD. It’s a sole proprietorship. It reports its income and expenses on Schedule C. Some years it makes money. Other years it loses money. It lost money last year. It lost money this year too. Hopefully next year it makes money.
And there are much cheaper ways to file your taxes than Turbotax. Harry Sit did an article on it recently: https://thefinancebuff.com/do-your-taxes-for-free.html
Thank you for both comments!
I was hoping to get some input on the following situation.
Hospital #1: Earnings of$300,000
I receive a W2 as a part time employee of this hospital.
As a part time employee, they do NOT offer any employer contributions like they do their full time employees, but as a part time employee they do offer putting a percentage of my income to the following retirement plan set up with fidelity:
1) Pre-tax 401K (max of $18,000 including option #2)
2) After-tax Roth 401K (max of $18,000 including option #1)
3) After tax contribution (max of $15,360)
Option #3 essentially is an after-tax contribution where you pay tax on any earnings made when you withdraw the money in retirement. As you can imagine this is not ideal, therefore it is not worth leaving your money in this for retirement as any earnings will be taxed.
Our financial advisor recommended to put money in either in #1 and/or #2 to max out to $18,000.
They also advised to max out #3, and convert this money on a quarterly basis to the #2 Roth 401K option. Any earnings made in #3 before conversion will be taxed, but by doing this on a quarterly basis (the maximum allowed for this plan) you can minimize this taxable amount. This taxable amount will be received at the end of the year via a 1099 form.
Independent contractor at Hospital #2: Earnings of $150,000
I also work as an independent contractor (as a sole proprietor) at another hospital and receive a 1099. I have a self employed 401K plan with fidelity.
Is the following correct in terms of the maximum I can put into retirement in my self employed 401K. I am unsure if the $15,360 would play a role in the maximum I can contribute.
Hospital #1:
$18,000 employee contribution in either Pre-tax 401K and/or Roth401K
~$15,360 after tax contribution converted to Roth401K on quarterly basis
Independent Contractor at Hospital #2:
$30,000 employer contribution (20% of $150,000) into my self employed 401K with fidelity
$5500 Backdoor Roth
Can I use the Roth401K already set up with Hospital#1 for this? I believe I just have to open up a traditional IRA to make this work.
$18,000 + ~$15,360 + $30,000 +$5500 = $68,860
Thanks!
The first question that comes to mind is what is the point of having a financial advisor if you have to check his work with some random blogger on the internet? If I was paying an advisor thousands of dollars a year for advice, I sure as heck would not expect I’d have to check on it with anyone. I assume you’re just looking for a second opinion, which suggests either you’re worried he’s giving bad advice or considering a DIY approach.
It sounds like your 401(k) at Hospital # 1 might be eligible to do a Mega Backdoor Roth IRA, which is a great option if you’ve already maxed out all your available tax-deferred options. Learn more about the Mega Backdoor Roth IRA here: https://www.whitecoatinvestor.com/the-mega-backdoor-roth-ira/
I think your best option is going to be to use your employee contribution in your individual 401(k). That means about $48K in there, divided between an $18K employee contribution and a $30K employer contribution. Then contribute $15,360 of after tax money to the 401(k) at Hospital # 1. Check with them if they’ll let you put in more post-tax money if you don’t put in any pre-tax or Roth money. Maybe they’ll let you.
Then you can do a personal and spousal backdoor Roth IRA in addition to all that.
I don’t personally have a financial advisor. The person I was referring to was someone hired by the hospital to give a lecture on our retirement plan. The lecture was geared toward full time employees, so when I asked about my particular situation she didn’t seem to know the answer. She also told me that I couldn’t have multiple 401Ks!
Thanks for your quick reply. Very helpful and definitely appreciated!
Ahh…that makes sense. At least you got a lecture on the retirement plan! I don’t even think I had access to a retirement plan.
Dear WCI,.., and others
I would like some input on the following set up for 2017.
1. Part time W-2 employed physician with access to a 401k = $18,000
2. 1099 independent contractor with CompHealth. Plan to open SEP IRA = up to $54,000
3. Telemedicine consults with various platforms. Plan to open SEP IRA = up to $54,000
Does the above make sense? Since CompHealth and Telemedicine work are “unrelated” business/companies, can I have “employer contributions” to two separate SEP IRAs up to allowable max, up to $126,000 tax deferred?
Can/should I do two solo 401k instead of SEP IRAs and do only “employer contributions” up to allowable limit and then do a $5500 back door Roth IRA?
Thanks in advance for all of your help.
No. You can’t have two SEP-IRAs for two businesses that you own 100% of. Your customers are unrelated, but the two businesses are both owned by you.
And yes, I’d do ONE individual 401(k) instead of ONE SEP-IRA to preserve the backdoor Roth IRA option.
Awesome! Thanks so much.
Awesome! Thanks for you reply and your great blog.
I am a W2 employee, with access to max 401a (~21,600k all from employer, 8% contribution from salary up to 270k salary), 403b (all pre-tax from salary up to 18k), and 457b non-governmental deferred compensation up to 18k. I plan on doing other other usual things, backdoor Roth, HSA, post-tax investments.
Question is, do I qualify for any other tax privileged accounts if I pick up a second hobby part-time job in which I am not over 50% the owner?
Thanks so much in advance, reading through comments and post, it sounds like my question should be answered, but some of this is going over my head, just wanted some thoughts, thanks!
Yes, you could do an individual 401(k) for any self-employed income. 20% of earnings up to $36K (because your 403(b) counts toward the $54K limit unlike a 401(k).)
I have a question about the qualifier above – ‘20% of earnings up to 36K’. in the above reply from WCI. Why 20%. I thought as the employee you could contribute almost all your self employment earnings to the solo 401K – minus self employment tax- up the the 54K limit. Isn’t the 20% of earned income the limit only for the Employer contribution to the solo 401K plan?
A separate question about employer sponsored 457B plans and employee contributions to those plans are treated like 403b plans or like 401k plans for the purposes of the $54K limit for total contributions including the solo 401k?
Thanks
How is Example #4 not a brother-sister controlled group? The physician works as a physician in a partnership with less than 5 owners and as an IC with 1 owner.
IRS: A brother-sister controlled group is a group of two or more corporations, in which five or fewer common owners (a common owner must be an individual, a trust, or an estate) own directly or indirectly a controlling interest of each group and have “effective control”
That’s correct. If they have the same owners controlling 100% of both entities this is a controlled group, so if they want to have a separate retirement plan for the 2nd entity, the staff in the first entity should also be included in any retirement plan they set up. In short, they should consider doing a 401k plan with profit sharing for the 1st entity (if demographics allows it), and they should not set up any plans for the 2nd entity (because having a plan for the 2nd entity which excludes the staff in the first entity would most likely not pass testing). If the partner for the second entity was different from the partner for the 1st entity, then the partner that has 50% of each entity could set up a separate retirement plan for the 2nd entity without any regard for the plan in the 1st entity.
You’re obviously right. Bizarre that I missed that and no one called me on it for over two years. I’ll fix it.