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 read all the comments. A trove of information. But I have a challenge I haven’t read much about. Our small practice abandoned our 401k as being too expensive. In 2017 we have a Simple IRA which I will contribute 12.5k and have matched 12.5 for a total of 25k. I am a 24.5 % owner. I have hospital compensation for non patient care activities of another 50k and my wife has about 50k in independent contractor earnings as an ophthalmologist. Can I do a i401k and add 5500 as employee contribution(now totaling 18k employee from IRA and 401k)and any extra from my IC activities to the employer side of the 401? Unfortunately I think I lose my backdoor roth as the Simple Ira rules states it has to stay for 2 years prior to rolling it over to my 401k? My wife can do her own 401k and backdoor roth. Any other suggestions? I’m getting crushed in my main practice with taxes. Our joint return effective rate was 35.7%.
Too expensive in terms of fees, or in terms of employer contribution? This article spells out some of the considerations when deciding on a 401k vs. a SIMPLE:
https://www.dentaltown.com//Dentaltown/Article.aspx?i=403&aid=5625
Not all TPAs know how to minimize your employer profit sharing contribution while maximizing your own, so I would recommend doing a design study to determine whether a 401k would be better vs. a SIMPLE. We always do this prior to making a decision, and yes, it sometimes turns out that unfavorable demographics makes SIMPLE preferable, but only after we’ve tried various designs and are sure that the cost does not justify the benefit. Given your higher brackets, a 401k is a lot cleaner with backdoor Roth as you note (you’ll always have pro-rata issues with SIMPLE). And cost-wise, you can get a very low cost 401k plan (with low cost Vanguard funds) without any asset-based fees taken out of your account, so that’s not very difficult at all. With 4 partners, cost is split 4 way, so that’s an added bonus.
You can indeed do a solo 401k with a SIMPLE (since you own less than 50% of the practice), but your salary deferral is in common with the SIMPLE IRA (so $18k total for salary deferral to 401k plus SIMPLE). With a SIMPLE you can still make a non-deductible IRA contribution, and you can convert it when SIMPLE is rolled into a 401k plan.
Too expensive in terms of employer contributions. Helpful link, thank you. And to clarify for me when you say “non deductible IRA contribution and convert it when the Simple is rolled over” you are referring to a roth conversion? Do you agree I need to wait 2 years for the roll over?
Yes, you have to wait for the conversion step, but not the contribution step.
If you have a large staff who are older and four younger partners, this can be a problem. This happens with larger practices when you have maybe 8-10 staff per partner. So the first step is to do a thorough design study because you need to know for sure that you can’t get a design to work for your practice. Sometimes with creative design approach you can decrease employer contribution significantly. This just takes a bit of work that few TPAs are willing to do.
And the next step is to actually calculate what ‘expensive’ means. All of the employer contribution is tax-deductible as a business expense at the highest marginal brackets, so when you actually use the best possible design and compare to the alternative (say 401k vs. SIMPLE) only then you can be sure that a SIMPLE is better (and the above article explains how I typically do this type of analysis). A big part of this is the fact that any money not contributed to a tax-deferred account is taxed, so doing the right analysis to compare apples to apples is key to determine which plan is better for your practice.
Hardly anyone does this analysis, but given that many practices set up a SIMPLE because they don’t have the right design for the 401k or set up a 401k without realizing that it might cost them too much and a SIMPLE would be a better alternative, I think that this should be the first step in making an informed decision.
Hi,
This is my situation.
I’m currently employed in a state facility that offers a pension. I contribute 6.8% of my salary that is matched by the state. They also allows after tax contribution up to 53K. Will this affect my limit my 20% employer contribution when I open my solo 401K?
Thank you very much!
No. And it’s $54K this year.
Thanks!!!
Do you have a list of CPA that you refer that knows all the tax strategies that we discuss here at your blog?
A list? I’m working on finding one. And to have that one actually be wanting to advertise on the site represents another barrier. I’d love to have a list of 100 of these as I get asked several times a week for CPA referrals and most people want a local one!
Thanks!
I was hoping you could help clarify my situation. I currently have both a w2 part time gig, and work as an IC with a solo 401k. Through my w2, I have deferred 18k as my employee contribution. Through my S corp, I plan to have net profits of ~$250k and distributions of $100k. I plan to contribute ~$53k as employer contribution/profit sharing. My accountant has advised me that my employer contribution would be based on my distributions and not my w2 income from my scorp.
My wife is also an employee of my S corp, and I plan to defer 18 k of her salary as employee contribution, as well as match her 25% contribution at the end of the year. Could you please shed some light? Thanks.
I think you misunderstood the accountant or he doesn’t understand how it works. The employer contribution can be no larger than 25% of your S Corp wages. Your distributions don’t count toward the total on which your 401(k) contributions are based. So if you only make $250K, and you call $100K of it distribution, no way can you put $53K in there. It’ll be around $37K.
Sounds like your wife’s part of it will work out fine.
Thanks for all the education! Starting year 2 as an attending (35 yo) and have a lot to learn
My situation, I’m hoping for a little advice:
Job 1 – Private for profit group employee 375k
Job 2 – Locums work 1099 into my PLLC, ~50k
Student loans are consolidated into a <3% interest
Mortgage at 3.7%
Currently:
401k – job 1 is maxed out, they match 3% then fill up to 53k
HSA – maxed out
529 – Vanguard 529, place 1 k per month for unborn under my wife's name and will eventually transfer
Term life insurance, job specific disability
Holding onto some cash for when the market plummets to buy property
Plan:
What should be my next steps for retirement savings? Can I set up another 401k through my pllc, or am I not able to since I am maxed at 53k? If I can, how do I create another 401k? Or should I do an IRA and roll into a backdoor Roth? Are there any other investment accounts I'm not thinking of?
How about an individual 401(k) for your PLLC earnings. You could get perhaps $10K in there. Here’s a link to Vanguard’s Individual 401(k) paperwork: https://personal.vanguard.com/us/LiteratureRequest?FW_Activity=FindLiteratureActivity&FW_Event=getliterature&vendorID=S571
Ok, thats what I wasn’t sure of. Read everything above but still wasn’t certain whether I could do a second 401k despite my first 401k being maxed out with job 1
Thanks again for all the help!
Hi Just posted some questions on SEP vs. solo 401K, then I read this post. So here are my questions, how many 401Ks /sep can I have in my situation as follows?;
I have my own private practice nephrology group (sole owner at this time)which pay me W2 and full profit sharing to max 53K.
I also have 1099 Job with DaVita Dialysis centers, as a medical director. currently I have SEP for this
I also have some ownership in those dialysis centers via a LLC, which will start earning K1. Can I hire spouse and set up solo 401K for him? I dont think I can do anything for me with this income.
thanks in advance!
If your K1 income is passive, then you can’t open a retirement plan for that entity and you can’t use this income for retirement plan purposes. Also, it is not clear what you mean by private practice nephrology group. Is this a solo practice or a group practice? Do you own an entity under the group practice or do you own an actual group practice?
You can have a 401k and a Cash Balance for your private practice. You can also have a 401k and a Cash Balance for your income from your 1099 job. This would be plenty enough options, and you can definitely employ your spouse in either one of those entities (your practice or your 1099 job) depending on the facts and numbers.
I wouldn’t use a SEP, and instead I would recommend a solo 401k. Depending on the level of income, a solo 401k would allow you to add a Cash Balance plan if your income level is high enough (and consistent enough) to warrant this (you can’t have a CB plan with a SEP). Also, SEP would not allow you to do backdoor Roth, which is another tool to build up your Roth bucket.
Your businesses are all related, so you only get one 401(k)/SEP-IRA $54K contribution limit, plus if your nephrology group has employees you have to consider all of the ramifications of that. If you hire your spouse, he can use the 401(k) you offer your other employees.
I was confused by the ‘solo’ owner of a group practice. I assumed that means a partner, but I guess I was wrong. I’ve clarified my response below, you are exactly right. Sounds to me like a voluntary compliance filing is on the horizon and amended tax returns.
In this case I would consider doing a combo 401k/Cash Balance plan for the group practice, if that’s financially feasible given the staff demographics, especially if there is already a 401k plan in place. That’s the only way to increase tax deferrals.
It may be possible to have some of the income from 1099 work go into the practice entity to boost the income (if that’s necessary for Cash Balance plan purposes), but that’s something to be discussed with the CPA.
Just to clarify, if you are part of a group practice, you can indeed have a 2nd set of retirement plans for your 1099 income IF you don’t own more than 50% of the practice. If you own 100% of the practice and 100% of your 1099 entity, then you can only have a single $54k limit.
That’s why I asked about the group practice. Often group practices are set up with partners having separate LLC/S corp entities, but if you have a partnership, then your ownership % matters. If you do indeed own 100% of your practice, then you can not have separate retirement plan for your 1099 entity because you would then have a controlled group, which means you have a single $54k limit and while you can have multiple plans, they would be subject to a single limit.
So first thing to do is to verify facts and to make sure that you were allowed to open a SEP. If not, you would need to close it and remove all money deposited in it (as well as to do voluntary compliance filing).
where is a good resource to verify the facts? I have since spoken with my FA , CPA, and they dont really know for sure. Thanks!
CPAs and the majority of financial advisers don’t know very much about retirement plans. Retirement plans are rather complex, and controlled/affiliated groups are even more complex. For retirement plans you need to consult with advisers who specialize in retirement plans. There is no way to know what you can and can’t do without doing a thorough analysis of your situation. I can take a look at your situation and help you decide on what your options are. If there is something I don’t know or if I can’t make a decision because the situation is beyond my grasp, I have access to TPAs and ERISA attorneys who know all the answers.
Thank you so much. I do owe 100% of practice at this time with one other physician employee. Will touch base again with CPA regarding SEP.
Thanks WCI for reassuring my FA’s advice on TIRA .
Great article. Quick question:
I recently opened a solo 401K with vanguard. Then realized they don’t take roll-overs from prior employer based 401K. They do take roll-overs from other solo 401K plans. If I open a second solo 401K, say with fidelity, roll over my former employer based 401K plan, and then roll everything to vanguard, is this legal? I read that it was not possible to hold two solo 401K plans at the same time. Thanks!
You can hold two, but don’t put money into two. Maybe use the Vanguard one this year, then open a Fidelity or etrade one next year and roll the Vanguard one and your old one into it?
I’m a 1099-compensated physician with no employees who just relocated to Nevada after having spent the first six months of the year practicing in California for the previous three years. I was structured as a sole proprietorship in California with a Solo 401K that I first opened in 2015. I have since formed a PLLC (to be taxed as an S-Corp) under a different EIN here in Nevada. I am looking to open a new Solo 401K for the PLLC. I don’t anticipate generating enough from either my sole prop nor my PLLC individually to make the maximum 54k contribution for 2017, but I should comfortably have enough income to do so if I could contribute to both Solo 401k plans this year. I understand that I am the same owner of two businesses doing more or less the same thing, but the work was performed in different states under different EINs. In this situation, am I allowed to contribute to both Solo 401k plans in the same year, as long as I don’t exceed the 54k maximum? Am I required to roll over the first Solo 401k into the second one within a certain span of time?
Thanks!
Yes. Your limit is $54K because the businesses are clearly related.
No.
I am a 50+ year old physician, who retired from the military and then started working for a medical group. I ended up having some medical issues so was not working for approx. 1.5 years and then started doing various medical consulting jobs from home this year as an independent contractor and have set up a solo 401K
I understand I can put 100% of income up to 24,000 directly into the 401k, but what if I make less than 24,000 the first year. Is the max I can contribute to the solo 401K determined by my Earned Income minus 1/2 what I owe in self-employment tax?
If I start making over 24,000 I can than take 25% of all income over the 24,000, minus 1/2 self employment tax and also put that to the solo 401k up to 59,000, is that correct?
I am also going to start work part-time as a employed physician at a federally run clinic and they have a 457b so I understand I can also defer 18,000 of this income a year and it will not affect the amount I can contribute to the 401k.
I had done a back door Roth IRA in the past, and at the time I did not have any other IRAs (I had a 403b/TSP military account), so the conversion was fairly simply. But when I left my last employer, they said I had to move my 401K or pay the fees which were high, so I had rolled it into a regular IRA. Can I now roll that money which is in a regular IRA into my solo401K, so that if I decide to do a back door I IRA again, I don’t have any money in any other IRAs?
Lastly, as an independent contractor, who’s work is intermittent and irregular I decided it was easier to simply pay more Federal and state taxes out of my monthly retirement income, rather than trying to project what my quarterly self-employment taxes would be . I’m probably over paying the taxes slightly, but I think it would be easier that way. Is there any issue doing this? Or do you have a better suggestion?
I think it’s a $60K max this year for 50+, no? $54K + $6K? Perhaps the easiest way to do it is to let tax software calculate out your maximum contribution. So put in a bunch now and then at tax time, top it off. But yea, you’ve got the basic formula down. One thing to keep in mind though is as a sole proprietor, its 20%, not 25%. I know the IRS paperwork says 25%, but they mean 20%. It’s 25% of what’s left AFTER the contribution, which is really 20%.
The 457 limit is separate from the 401(k)/403(b) limits. Kind of weird that that clinic would offer just a 457 and no 403(b) or 401(k). Better look at that more closely. You might be able to have two 401(k)s plus the 457.
Yes, you can roll that IRA into either the solo 401(k) or the TSP to eliminate the pro-rata issue with your backdoor Roth IRAs.
No, no issues. As long as you’re overpaying in total.
So to summarize, since I use I use turbo tax premier and did not see any calculators to determine how to make these calculations:
If this year, since I just started working in March, I only make 15,000 as an independent contractor I can put in 13,852.50 [15,000 minus 1447.5 (1/2 15.3%)] into a solo 401k.
And if I start working as a part-time employee at another medical group I can put up to 18,000 in there 457b (they are making a special exception and allowing me to contribute to the 457b since I am working less than 10 hours a week, and no other retirement plans are available for my work for them).
In the future if make more as an independent contractor I can put in 24,000 of my earnings into the 401K as long as I make 25836 (24,000 +.0765), than I can also put in 20% of my earning beyond that up to 60,000.
Lastly my 401K from my prior job that I rolled over into a regular IRA this past year, I can now roll over to my solo 401K.
Is that correct?
And I
Looks good to me. Assuming your solo 401(k) allows rollovers (Vanguard’s doesn’t for instance.)
My situation:
Job 1: Group practice of which I am 1/3 owner. Receive $59K for 401K total
Job 2: Directorship paid by hospital by 1099. Total salary $60K. Can I open a solo 401K for this job and how much can I contribute? Do I need an LLC or EIN for this?
I also do $6500 backdoor roth
Thank you
You don’t need an LLC, but most individual (solo) 401(k) providers do require an EIN to open one.
I guess the question is whether these two businesses are in a controlled group or not. I think since you own 100% of one and only 33% of another that they are not, so you should be able to have another 401(k). Remember only one $24K employee contribution no matter how many 401(k)s.
Thanks for this really helpful article. I tried to search through the comments & forum and didn’t see my question answered; apologies if I missed it.
My wife & I are both physicians working as locum tenens. We are both sole proprietors right now, have not set up any corporation. We currently have the same agency & hospital clients, but that will change later this year.
I’m thinking of us as separate proprietorships. Does that mean we can both have solo 401k’s? Or should we think of this as one shared business that we own 50-50 and therefore we can only have one solo 401k?
Basically, in the case of a controlled group you would most likely have to file the full form 5500, not the 5500 EZ, and you can file a single form for both plans, so you can indeed have two separate plans. I know that custodians would not file the full form 5500, so in the case of a controlled group you might want to find someone who can fill this form out for you, maybe your CPA can do it.
Sorry if the above is a bit confusing, this is just how things are with these convoluted rules.
Sorry, my first reply got posted below yours, please see below for the first part of my reply.
Yes. Or use the same one. Either way, $54K a piece if you’re under 50. Doesn’t matter if it is one solo 401(k) or two.
Depending on which state you are in, two separate entities/proprietorships can still be a controlled group (through marriage attribution in a community property state or via marriage/children in a non-community property state), but each of you have a single $54k limit, so this does not change whether you open a single plan or two different ones. With a controlled group you can open one plan or two plans, and with two separate proprietorships that are not a controlled group you can also open a single plan or two plans.
The only difference is that with a controlled group both plans are tested together (though without employees there isn’t any testing), so you might as well just open a single solo 401k plan, though you most likely can not do that with a ‘stock’ solo 401k, and this would require a custom plan document. You can open a single plan even if you don’t have a controlled group, with two adopting employers (and pool your investments), but this again would require a TPA and a custom plan document. So first thing, you need to find out whether you have a controlled group or not (and whether you are in danger of creating one, say via children). You can open two separate plans, but I’m not sure what type of reporting would be necessary in the case of a controlled group with two solo 401k plans (I know this is reported on the form 5500 for ‘regular’ 401k plans), you might have to ask the custodian prior to opening an account.
What if my employer pays me as an employee (401k with match) at some hospitals and with a 1099 as an independent contractor at others? Can I take advantage of this still and open a solo 401k for the 1099 income? I also receive a significantly smaller sum for some IC consulting that I do, how would that fit in? Thank you so much! Avid reader of your book and have given it as a gift to many recent grads.
Yes. All the self-employment income is one business that gets one individual 401(k).
Your newest post referenced this one, and as such I’m glad I clicked over. If i’m leaving tax deferred investment on the table, I would like ot fix that ASAP 🙂
Im a part of a democratic group practice that issues a K-1 for partners ($300k), with contributions to a 401K plan ($53k) and Defined Benefits plan ($30k). I do some other work on the side through my own LLC and thus get 1099 ($35k), I have some real estate investment properties that have leased out and get a revenue through a separate LLC ($46k). I am single, so no spouse income. I contribute to backdoor Roth ($5.5k) and HSA ($6.6k). So a total of 53 + 30 + 5.5 + 6.6 = 95.1k contributions.
Does this still mean I can contribute another $53k to an individual 401k? If so, what is the process of starting my own 401k — would I just go to Vanguard / Schwab where I have other accounts and open one? Is the designation I’m looking to open an Individual or Solo 401k?
Also in your example #2 (which seems closest to my situation) you indicated that from your partnership 401k that $18K can be Roth. How do you designate that?
Many thanks!
Aren’t you in my group? At any rate, your numbers are the same as mine (it’s $54K for 2017 BTW.)
You can put 20% of the net 1099 income but nothing from the rental properties (that isn’t earned income) into an individual 401(k). So about $7K.
Mine is at Vanguard, but I might have done eTrade if I had it all to do over again and just bought Vanguard ETFs. Individual 401(k) = Solo 401(k). Same thing. You’ll need an EIN (simple and cheap) and fill out this paperwork at Vanguard: https://investor.vanguard.com/what-we-offer/small-business/individual-401k?lang=en
If the partnership 401(k) offers Roth contributions (and yours does) you can put up to $18K in there, but that reduces the amount that goes into the tax-deferred side by $18K.
Yes yes, same group 🙂
Thanks for the clarifications. $7k tax deferred is totally worth the effort! Also appreciate the E-trade rec and logistics. Just read your post on Bogleheads thread about that, and seems the Etrade account is indeed a good route. (https://www.bogleheads.org/forum/viewtopic.php?t=127182)
I own a Independent Pharmacy (S-corp) and max out my 401k through this. My wife is also an employee and max out her Roth 401k through the S-corp. We have 17 employees that have access to the same 401k.
We recently built a new building that my wife owns through an LLC. The S-Corp is paying rent to the LLC. Can we place any additional money in tax advantage accounts through the LLC?
No. The companies are clearly related, no?
Yep:(. Thanks!
Also, this is not earned income, so even if they weren’t related, you couldn’t do this. I’d be curious to find out what your employer contribution is with 17 employees. Unless they work less than 1000 hours I would imagine the cost of profit sharing would be huge. But if you are able to max out with high % to owner, then you might be able to add a Cash Balance plan and make an even higher contribution this way, provided that you are at least 40 years old (older is better).
I’m 38. Our 401k is set up for a 6% match.
You are right about the profit sharing. I’ve looking into it and it would be very expensive to make any sizable contribution to myself.
There are different ways to optimize profit sharing contribution. For one thing, you can probably exclude half of your employees from the profit sharing, but it does get tricky. You are way too young for a Cash Balance plan, I’d wait to try it. Depending on the demographics things may or may not work out on the 401k side, but you’ll definitely need some creative design work (and there is no guarantee that this can help you put away $54k). Usually with a CB plan your % to owner will increase, but not always.
The most important part of this analysis is to understand what % to owner is going to be acceptable vs. just doing after-tax (since that’s the only thing you have aside from backdoor Roth and your 401k with the match). Just because your profit sharing contribution is high does not mean that this is automatically bad – there is a breakeven point, and for those in the higher brackets tax deferred is definitely more advantageous than for those in the lower brackets.
Question on Rule #7 and I apologize if this in the comments but I can’t read 580 comments when the information is this dense…
I am an employed doc with a 403b and have a separate IC position for which I am self-employed (just me, 100% ownership). You mention that the 403b limits me, but I was unsure if that means I cannot open an Individual 401k at all because of it being a controlled group or can still open one but my max is only $35K ($53K-18K). Can you clarify if being a 403b employed doc limits my ability to open an Individual 401K at all through a separate entity as a 1099 IC or just limits total contribution amounts through my side IC job?
Thanks
You can open it, you’re just limited to $36K this year.
WCI,
Wisconsin Retirement System allows you to contribute after tax dollars with a limit of 54,000. I also opened a solo 401K. My accountant said that my employee and employer contribution for my 401K and the after tax contribution that I’m planning to contribute to Wisconsin Retirement System should not exceed 54,000. Can this be a case of two separate employers and I can use two 54,000 limit.
Thanks!!!
I’m not familiar with the Wisconsin retirement system. It’s also not clear if you have self-employment income. But if you have two unrelated employers (even if one is you), you should get two $54K limits. Many accountants have been wrong on this point.
WCI,
Per your advise here, I opened a solo 401K at ETrade (Also received 1,000 dollars rewards) for my Hospitalist Income as a side job. I earned 60,000 dollars this year.
I’m also employed by the state of Wisconsin that allows 54,000 after tax additional contribution.
Here is the statement that I found in their documentation.
https://www.evernote.com/l/ADaAnFYQKYdMfpVakiyzFGtKF5knASjG_gwB/image.png
It states that “Certain WRS additional contributions are subject to annual limits as imposed by federal tax law in IRC Section 415(c). In 2016, you may contribute 100% of your gross compensation for the calendar year, up to $53,000. This limit may increase in future years.”
Thanks!!!
That’s right, if you have a 403b plan, and you also have a solo 401k plan, your total contribution into BOTH plans is limited to $54k. This rule simply makes no sense, but it is on the books so just make sure that your total contribution is $54k or less.
Thanks for this post, WCI! I realize it’s a bit dated, but it was just cited on reddit today, so this is the first time I’ve come across it. It’s timely for me, to help guide the research I need to do in hopes of adding some 401(k) income for myself and/or Mrs. Vigilante as soon as possible. Bookmarked!
Sorry if this has already been answered previously in the comments section, as I’m trying to read them all but getting overwhelmed. Here’s my situation
Job #1 – employed by megacorp on a w2 making 300k and maxing out their 401k plan for the year at 54k
Job #2 – 1099 income from nursing home medical directorship, hospice certification/recertifications, nursing home rounding (about 20k total each year)
Job #3 – This is the tricky part. My husband is in private practice with 4 employees and they have a 401k with the practice. He wants to pay me approx 100k via 1099 for covering for him when he is out of town from his practice, seeing his overbooked patients, following up labs etc. He would like to do this rather than make me another w2 employee of his practice. Is this feasible since we are married? And if he pays me 1099 contract pay, does that allow me to have a solo 401k? Even if he does not give me 1099 income, can I have a solo 401k for my Job #2 or would it be considered related/controlled via marriage by his company? The easiest answer seems to be to make me a w2 employee and add me to their 401k/PSP, but then I would not be eligible for the plan until after 1 full year of service with the company.
Thanks in advance
Job # 2 and Job # 3 are the same job, just two different customers. Yes, you can have a solo 401(k) for that job. If it pays you $120K, you could put something like $24K into a solo 401(k).
I don’t think the marriage is an issue, but that point may be worth double checking with a knowledgeable CPA.
A refresher is in order, here’s the relevant info:
https://benefitslink.com/cgi-bin/qa.cgi?db=qa_who_is_employer&n=111
There are two factors to consider with respect to marriage: kids, which attribute control to each spouse, and community property state (which attributes control without kids). In either case we got a controlled group. If the demographics for the practice are challenging, the solo 401k might not pass the combined test and it might not even work well with the practice plan given that they have different plan docs, so in this case a single plan is always better vs. having separate plans (and a single plan document is still better to keep the costs down and to make sure both plans follow the same rules).
Those are some crazy rules, especially the one about whether or not you have kids. First time I’ve read that.
Tell me about that, I’ve been collecting this stuff since the start of this entire thread. I see all types of variants on this. Leased employees is another area where I see lots of mistakes, and it can get very costly for a practice if they are not following the rules.
I’m sure there are plenty of docs and spouses violating the controlled group rules as far as solo 401k plans. Affiliated group rules is another area where things get dicey. You can easily avoid controlled group rules in some cases, but if affiliated group rules kick in, then you got a controlled group just the same.
First thing to note, you most likely have a controlled group, so I would forget doing a solo 401k for your 1099 income (especially if you have children or if you live in a community property state).
So because of that, paying you a 1099 won’t be of much benefit since you can’t have a separate solo 401k anyhow without things getting really complicated with respect to your husband’s retirement plan (both plans have to be tested together, which is not something that you want to do because you might never pass the tests if you maximize your contribution into the solo 401k plan.
However, if you get a W2 from your husband’s practice, you can contribute into his plan, again, subject to testing (this time it will be for a single plan, so that’s preferable in terms of lower complexity and better oversight by the TPA). The only issue that I see is that if you are making salary deferral into the other plan, maxing out with profit sharing only can be difficult. You might want to consider contributing just the match for your other job, and contributing the rest into your husband’s plan. This assumes of course that he has low cost index funds and no AUM fees of any type in his plan, which would make it more preferable to contribute money into his plan vs. into your other W2 plan. Also, you do want to get an illustration from the TPA to make sure that this is cost effective since your husband will be paying payroll taxes on that $100k in W2, so there is a tradeoff here in terms of setting your W2 to get the biggest bang for the buck. Also, the W2 has to be fair according to IRS standards considering that you have another full time job.
Wow, thanks for your insight. We are both in our early 30’s and he had the practice up and running before we got married, but I have only just recently started working as an attending. So in Texas, any business I own/start is 50% his, which makes it a controlled group situation. So no solo 401K for me =/. As far as practice demographics, his current employees are non highly compensated and range from late 20’s to early 30’s in age, and have about 1-2 years of service for him. Does this make our demographic “difficult” if we are adding me as a highly compensated employee?
In regards to payroll taxes, if I have already maxed out my SS taxes from Job #1, does he still pay the employer portion of it when he pays me? And do I pay a new set of SS taxes when I work for him?
Yes, just the employer portion for the payroll tax, no more for you as an individual. Texas is a community property state, so right off the bat you got a controlled group via marriage attribution.
The #1 concern is whether the W2 you are getting is fair based on a job description you’ll have with the practice, so that’s something to consider. Also, you have to be careful about the part-timer exclusion in the plan document. If you work less than 1000 hours a year, you can’t join this plan unless you open it to all part-timers who work less than 1000 hours. Also, you can have a special entry date without having to wait 1 year, but again you’ll let others who haven’t met the 1 year requirement.
As far as demographics, short of doing an illustration it is difficult to predict what can happen. What we typically do is a design study with various salaries and other options just to see what the best design would be given a specific scenario with the goal of maximizing your contribution and minimizing employer contribution. This has to be done every time there are changes made to the plan (such as when staff is added/removed, etc). Your TPA should be able to assist with that.
Just to confirm that I am doing this correctly
I work as an independent contractor doing multiple misc. jobs (telederm, record reviews etc) which I will receive a 1099 and I expect I’ll receive approximately 20,000 this year.
Since it all profit other than minor costs (medical license, business certificate, MOC fees, CME which totals 459.25) I planned on contributing all my net profit (20,000-459.20=19,540.8) to my solo 401k – ½ SE tax (3060/2=1530) which would come to 18,010.75
I also work as a W-2 employee and I plan to contribute 18,000 to a 457b.
In addition, I want to put 6,500 of my after tax earnings into a traditional IRA then convert to a ROTH.
I believe I am able to contribute to each of the above plans, but I wasn’t 100% sure I was calculating correctly what I am allowed to contribute into my solo-401K. Can you confirm please?
https://www.irs.gov/publications/p560#en_US_2016_publink10008832
Yes, I think that’s right.
My turn. WCIer since 4th-year med student!
31, in fellowship, just started moonlighting substantially, married w/ stay at home wife, 2 children, renting; loans 350K [planning for PSLF, but prepared to shift focus if it falls through*].
My hospital allows me to moonlight as an employee so my estimated total W2 income (salary + moonlight income) for 2018 will be 200K+. I also work as a sole proprietor on a 1099 (50K+);
Plan for 2018:
Employer pre-tax 401K (18,000)
Employer pre-tax 457 (18,000)
Backdoor Roth IRA (5500)
Spousal backdoor Roth IRA (5,000)
Solo 401K (18,000 + 20%rest of income)
*Obviously waiting to see what happens with PSLF. If PSLF falls through, I will scrap the above, refinance here on the site to a private company, continue to rent, contribute every penny to pay back loans, and pay it off in 1-2 years.
Is this an effective use of my retirement accounts?
Thanks
The issue I see is you’re planning on using your $18K employee contribution into two 401(k)s. You only get one of those. You’ll only be able to do the 20% employer contribution in your solo 401(k).
Long time admirer of your site. I haven’t read all 599 comments, so I don’t know if you’ve addressed this. This webpage:
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
reads to me like $55000 is the limit for the total of all unrelated employers. Here is the relevant part:
“Compensation limit for contributions
Remember that annual contributions to all of your accounts – this includes elective deferrals, employee contributions, employer matching and discretionary contributions and allocations of forfeitures to your accounts – may not exceed the lesser of 100% of your compensation or $55,000 for 2018 ($54,000 for 2017). ”
From your link:
I’m not sure how to make it any clearer.
This website has been very helpful. Quick question WCI, I too have maximized my 401k at my work (18k employee contribution with 5% employee match, for a total of 29k invested). I also made about 70k from my contractor income and want to do a backdoor Roth for my wife and I. I think a solo401 would be best.
I spoke to my financial advisor and he said I needed to create an s cooperation in order to contribute the employer contribution (which will be nearly 11k). Do you know if that is correct?
That is INCORRECT. Get a new advisor. Why should you have to teach your financial advisor the rules? I don’t have a lot of patience for that sort of financial malpractice. If they don’t know something, just say so and look it up. Don’t make something up. I don’t expect advisors to know everything, but that’s not exactly an uncommon issue for doctors.
You need an EIN, but you can get that quickly for free from the IRS online. You only need to be a sole proprietor, not an S Corp.
Also, it’s not clear from your comment that you understand that a Backdoor Roth IRA and a solo 401(k) are separate things with their own contribution limits and you can do both.
You do need to open that solo 401(k) before the end of the year though, which might not be possible. One work around is to do a SEP-IRA for tax year 2017 (open in 2018 prior to April 15) and roll into your solo 401(k) in 2018) and a solo 401(k) for tax year 2018. You have until April 15 to fund Backdoor Roth IRAs for tax year 2017.
Thank you for this. Two quick questions. If I do Roth conversion in 2018, can it apply for the 2017 tax year? Second, can I do the Roth IRA backdoor and SEP-IRA simultaneously? I think not due to the pro-rata rule.
No, conversions are reported for the year they are done. Only contributions can be done for the prior year (if done prior to April 15 of the next year).
You can do a traditional IRA and a SEP-IRA contribution in the same year. But if you convert your traditional to Roth IRA and there is money in the SEP-IRA on 12/31 of that year, you’ll get “pro-rata-ed” on your 8606.
Gotcha. I understand now. So I could do the backdoor ROth IRA conversion this year and then do the SEP-IRA early next year to use for 2017 taxes and the later roll them over solo 401k to not get the pro rata rule.