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 will graduate residency this year and am trying to educate myself with help from your book and this website and a physician mom’s finance group. I currently moonlight with 1099 income and plan to open a solo 401k. When I become an attending in July, I will max out the retirement plans offered. If I understand this article correctly I can have my hospital employer match my contribution at their max of $18k, max out my portion and then also place $53k in my solo 401k correct? What were the rules about the contribution not exceeding the compensation from the 1099 income though? Will I need to be making >$53,000 moonlighting in order to place $53,000 into a solo 401k? Thank you for all of your excellent advice!!
Yes, if you have enough income to hit the (note in 2018 it is higher) $55K limit, you could potentially get that into both plans.
Let’s say you make $200K at the main gig and $50K moonlighting and your employer offers a 100% match on the first $18,500. Then you could put in $18,500 into the employer 401(k), your employer would put in $18,500 for a total of $37K there. Plus you could put another $10K into an individual 401(k). So a total of $47K. If your employer gave you a larger match, you could put more into their plan. If you made more moonlighting, you could put more into your plan.
Right
What I can’t seem to make sense of is if it’s possible to go beyond that limit. For example, in my current main job (K1) I have my 401k maxed. I have a side gig moonlighting paid into my PLLC, about 50k. Since this is a separate job, can it fund a separate 401k?
Yes, a separate job can fund a separate 401(k) with a separate $55K limit. But you must have enough side gig income to max that out (like $280K) because you only get one $18.5K employee contribution no matter how many 401(k)s/separate jobs you have.
Thanks!
Ok, so just to make sure I have this right:
Job A (K1), employee contribution is 18k, and employer distributions are filled to 55k
Job B (1099), no employee contribution since that was already maxed (right?). Employer contributions can be up to 25% of compensation. So if my PLLC pays me 40k, 10k can be placed into a small business individual 401k, for a total of 65k?
Part of my confusion is when I called vanguard small business 401k they informed me that you couldn’t go beyond the 55k limit
Yes.
Not quite. If the PLLC pays you $40K, you can put $8K in. It’s 25% not counting the contribution or 20% counting the contribution. If the PLLC only makes $40K total, you can only put $8K in. If the PLLC makes $50K, files taxes as an S Corp, and pays you a salary of $40K, you can put in $10K, i.e. 25% of what you were paid but 20% of what the PLLC made.
And since most people don’t have access to two 401(k)s, most advisors don’t even know you can use more than one. This post is a reference for many of them.
WCI: For your “Rule #2” as shown in this article, it’s understood/agreed that you can have multiple 401K plans. One from each business/employer and the profit-sharing limit of $55K (for 2018) is per 401K plan from each business/employer. However, I couldn’t find any text on IRS website or anywhere else stating multiple 401K plans from mutiple business are not allow if they are part of the controlled group? Please help confirm/verify this info or point to IRS codes/references regarding this.
I spoke with a representative from an employee benefit services company and was told differently. The rep said you’re allow to have multiple 401K plans from multiple businesses that you fully own (controlled group). This even applies if your “Company A” has employees and your “Company B” is only yourself (and spouse). However, the most important rule in this situation is the requirements to have “comparable” benefits/contribution-matching/profit-sharing between those 401K plans from each company.
I’ve been trying to confirm/verify this info. If what I’ve been told above is true, that is HUGE!!! Especially for high income business owners. A couple can potentially stuff away $110K per 401K plan at each one of their businesses. If they have 3 businesses with high enough income, that $330K tax deferred.
WCI is right and the rep is right, but they are both right about the same thing. Controlled group/affiliated service group rules ALWAYS apply, this is not the question.
WCI’s statement is inaccurate in one way. You can have multiple retirement plans in a controlled/affiliated service group, but you are still stuck with a single 415 limit. And while reps’ statement is partially correct, it is highly inaccurate. While you CAN have multiple retirement plans in a controlled group, they all have to be tested together, and ‘comparable’ is not going to cut it because the testing for multiple plans can get expensive, and you so is the administrative cost to have multiple plans that still fall under a single 415 limit. And you still have to cover the employees of a controlled group.
These are IRS’s own rules:
https://www.irs.gov/pub/irs-tege/epchd704.pdf
Bottom line is this: you can not avoid controlled/affiliated service group rules. If you own 50% or less of one business (with an unrelated/non-spouse partner), and 100% of another one you can have separate retirement plans with separate limits. If owner/spouse have separate businesses, they might form a controlled group via children/spousal attribution, and that would require both of their separate plans tested together, so they might as well form a single plan for the ‘group’, even if the businesses are unrelated.
This is why often an ERISA attorney is required to sort through various scenarios. I also often see docs trying to DIY through these rules making lots of potentially expensive mistakes along the way. Prior to doing something potentially wrong, always consult with someone who knows these rules well, and worst case, you might need to pay an ERISA attorney for a letter of opinion if you have an especially complex situation.
It’s definitely true. I think there is something in this that confirms it, but it’s been a long time since I went through it:
https://www.irs.gov/pub/irs-tege/epchd704.pdf
I think the rep from that firm is wrong, but I can see why you’re looking more carefully into it. Look, I’d love to be wrong on this, but it doesn’t pass the sniff test. Think about it. Why not split WCI into 5 different companies and open 5 different 401(k)s and put $280K into them? It doesn’t doesn’t make sense that that would be allowed.
You can do everything but the last bit: you can split WCI into 5 different companies and open 5 different 401k plans, but combined limit would still be $55k 😉
The pdf above provides guidelines for those who examine retirement plans, and controlled/affiliated service group rules come from ERISA and IRC, and it is an intersection of two, that’s why there is not a single IRS site that shows all of the regs.
This might give a better idea as to where all of the regs are found:
https://content.next.westlaw.com/Document/I0f9fea69ef0811e28578f7ccc38dcbee/View/FullText.html?contextData=(sc.Default)&transitionType=Default&firstPage=true&bhcp=1
Exactly.
This is my situation …. is it doable ?
Dual employed
Employer 1 – hospital
1. 401a – contributed last year 33k – ( I can’t contribute anything there )
2. 457 b – 18 k ( I contributed )
Employer – public university
1. 401a – about 5k
2. 403 b – 18k ( I contributed )
3 . They said I could do 457 here too …. I did not do it because I don’t get enough there to do it
Than I did back door roth – 5.5 k for me and 5.5 k for spose ( she doesn’t work ) .
My question – is it legal and can I maximize any more ?
Thanks
The Backdoor Roth IRA and 457s don’t count toward the $55K limit. 401a, 403b, and 401ks do. So what you’ve done is fine. If you could do another 457, that would be more. You might be eligible for an HSA. You can always invest more in taxable. You could get a 1099 job and do an individual 401(k) with that income.
To follow up on my question above . Did i do right by doing Backdoor … as I am way above 55k limit …..
thanks
I am getting push back from my accountant on a second i401k contribution and would like some clarification/help
I am an anesthesiologist and opened a second i401k on some 1099 income I made through doing work for donor alliance at the main hospital I work at. My main income is through an anesthesia partnership, paid on a K1. Our business and billing dept has nothing to do with donor alliance, it is something you can choose to do on your own and some in the group do, most do not. (Organ procurement at 2am is not appealing.)
My accountant is saying if it is the same type of work, then I have already met my contribution limit. I said, no, they are not a controlled group, which is the distinction that matters. I don’t exactly know where to go form here but I was counting on that i401k as a landing spot for some other retirement accounts. I want to push this through if it is legal, but my accountant is giving me resistance. And billing me as I educate her, which is annoying! Please advise. Thank you
Not sure what you’re saying. Do you have two individual 401(k)s? If so, I agree with your accountant. If not and you just have one 401(k) from your partnership and the i401(k) for the business you own, then it sounds like you need a new accountant. The controlled group is the distinction that matters.
The facts are not very clear. Sounds like you have a partnership that pays K1 and that has a 401k plan. This is not an I401k, this is a 401k plan and you probably have an individual brokerage account, but this is not an I401k.
If you do work for the same hospital for which the partnership works, then that’s where things get a bit murky. There may not be a controlled group, but there can be an affiliated service group which results in the same thing – a single plan limit. However, determining this is really tricky and facts do matter.
Superficially, if you don’t use the same staff/offices/equipment, and the only thing in common is that the hospital pays the partnership, and also pays you for 1099 work, I can’t find a reason to think that this is an affiliated service group (unless the hospital owns part of the practice). And of course I’m assuming that you own 50% or less of the partnership interest. If that’s the case, I see no reason why you can’t have another 401k plan for 1099 income, but I might be missing something, so your accountant is just being very conservative (so I don’t blame him or her) – I often have to consult an ERISA attorney as such matters do get rather complex and it is better to do it right the first time to avoid potential penalties and fines.
Another alternative is to set up a Cash Balance plan for the partnership if more tax deferred space is needed. Whether a plan will work for your practice depends on the interest of the partners and the contribution into a Cash Balance plan is limited for those who are under 35.
Sorry my post was confusing!
fact 1 – my main job is a partnership for which I get a K1 distribution and have a 401k which I have maxed at 54.
fact 2 – I made additional income by working for donor alliance, for which they pay me $1000 per organ procurement, which is, yes, in the same hospital where I do most of my anesthesia practice. I bill them myself, use my home as my address, my SS#, recently got an EIN, created an i401k for this income (but have not yet funded it.)
Fact 3 – my main practice (K1) does receive a small stipend from the hospital but most of our revenue is from our own billing.
Fact 4 – we do actually have a cash balance plan, which is great. I need the i401k as a landing spot for other retirement money, not really for extra retirement space. (I dont want to roll to IRA because I do a Back door Roth IRA)
Fact 5 – hospital owns no part of either business.
I have explained all this to my accountant and she is actually on board now. Thanks for all the feedback. And thanks WCI for educating me to such a level where I even have such problems!
I am new to this blog and came across it by accident while doing some personal finance research. Candidly, I am very interested in this topic and your advice sounds extremely valuable, but all of this is new to me and way over my head. My situation is below – any advice or reassurement is most appreciated. I currently only max out 401k employee contributions and nothing else.
–Primary Job:
Hospital work where I am paid solely W-2 income and offers a 401k (where I currently max out employee contributions and receive a 4% employer match)
–IC work where I receive only 1099 income (only approximately $25,000/year)
–Partnership 1 where I receive K-1 income (only approximately $25,000/year)
–Partnership 2 where I receive K-1 income (only approximately $25,000/year)
The two partnerships are unrelated entities.
How can I structure to take advantage of the $54k max.
Thanks for your help.
Welcome! It’s no accident you found your way here. I work very hard to be found by people like you!
First, it’s a $55K max for 2018.
Second, assuming these are all unrelated employers, I suspect you could have four total 401(k)s, all with a $55K limit. Of course, you don’t make enough at most of those jobs to max it out and it doesn’t sound like your hospital 401(k) will get to $55K either. You also don’t mention whether those partnerships offer a 401(k), so I’m guessing they don’t.
So it’ll probably look something like this:
Primary Job: $18.5K + 4% match
Your business (1099): Open an individual 401(k) and get ~ $5K into it
You can talk to the partnerships, assuming that is earned income, and see if they want to start 401(k)s. But it has to be offered to all the partners and the employees
Hope that helps.
Perfect – thanks for such a quick reply. I look forward to reading your additional posts.
Whoa!. Wait a second. Looking at the last few posts, I thought the max of any 401k elective contribution was $18.5k (fro 2018), regardless of how many 401k/403(b) one had, whether controlled groups or not. When did this change? From theses posts it sound like I can have 2 different jobs at 2 different medical groups/hospitals, unrelated to each other and I can put $18.5k on each?,…, Plus have 2 separate 457(b) with $18.5k each,… Plus do some IC work on the side (telemedicine) and open a i401k and put another $18.5k elective deferral PLUS 20% net Profit as Employer contribution? Is this right? I can shelter $92.5K or more?
Please clarify.
Thanks
No. You get one $18.5K (if under 50) employee contribution no matter how many 401(k)s. But the total for each 401(k) at an unrelated employer of the employee and employer contribution is $55K (if under 50). So typically you use the employee contribution at the main job and just employer contributions for your side gig.
457s have totally separate limits.
So the only thing you have wrong is the second and third $18.5K employee contributions. Can’t do that. But if you put in $18.5K into your main gig and maybe your employer gave you a $10K match. Then you made $50K at your side gig and put 20% of that in an i401(k) as an employer contribution. Total $38.5K in that scenario.
Hope that helps.
Question. I am an employed physician with 18.5 401k and employer match. My wife and I have a LLC for two rental properties where our 1099 income was about 35k for 2017. How much of that 1099 income can I invest into 401ks for either my wife and/or I?
$0. It’s not earned income.
My wife works for a single employer and here is her situation for 2018.
Salary: $105000
403b with no match: will max at $18500
457b with no match: will max at $18500
Defined Contribution Plan: 7% mandatory employee contribution ($7350) and 8% employer match ($8400)
The 403b plan allows roll-ins (for a regular backdoor Roth). The Defined Contribution plan allows after-tax contributions and in-service rollovers (for a mega backdoor Roth).
Questions:
1) Does the 457b plan count against the annual per-employer overall contribution limit ($55000 in 2018)?
2) Assuming the answer to 1) is yes, then her contributions total $52750 (18500 + 18500 + 7350 + 8400). Does this mean she would only be able to execute a not-so-mega backdoor Roth of $2250 via her Defined Contribution plan?
3) If she does do a not-so-mega backdoor Roth, would she be able to still execute a $5500 regular backdoor Roth via non-deductible Traditional IRA contributions?
Let me add that the 8% match on the Defined Contribution plan vests after 1 year. Does that make a difference?
No.
That’s a cool feature of a defined contribution plan. Can’t remember seeing that before.
1) No. Separate limit.
2) N/A
3) Yes. Separate limit.
Thanks for the quick response!
Why don’t the 457b contributions count against the $55000 per-employer limit? I thought the limit lumps all retirement plans together from one employer?
If my wife does the mega backdoor roth via the Defined Contribution plan, do the 403b contributions count against the limit then?
How much can my wife contribute after-tax to the Defined Contribution plan in 2018? Is it:
a) $2250 (counting 403b, 457b, DC contribution, DC match)
b) $20750 (counting 403b, DC contribution, DC match)
c) $39250 (counting only DC contribution and DC match)
Ask Congress/the IRS. It’s their rule, I’m just telling you what it is. 457s are in a different category.
Depends on the plan and its rules as well as her income. But assuming the plan allows it and she has enough income to justify the contribution, I believe the total contributions to the 403b and the defined contribution plan by employee and employer cannot be more than $55K if under 50. So b.
Thanks!
Awesome evergreen post! Thank you so much for all that you do.
One situation where I am still confused is the rules regarding multiple 403(b) accounts with separate employers (separate hospital and university employers each paid on separate W2 and not owned by the same controlling entity). The control rule “rule #7” above regarding 415c limit all hinges on 403(b) considered to be controlled by the employee, which suggests to me that all 403(b) would be controlled by the same employee and thus subject to a single 55,000 limit on annual additions.
However from IRS publication on 403b IRS publication 571 403(b) plans, Chapter 3 (Limit on Annual Additions) “If you contributed to more than one 403(b) account, you must combine the contributions made to all 403(b) accounts maintained by your employer. If you participate in more than one 403(b) plan maintained by different employers, you don’t need to aggregate for annual addition limits.”
Thus the IRS publication seems to say with a two employer, two 403(b) situation the limit is not aggregate and would be 55,000 for each employer (total of 110,000)
I would interpret the IRS publication to mean the following would be allowable for 2018:
18,500 employee contribution “Elective deferral” to 403(b) at employer A
6,000 employer match “Nonelective contribution” to 403(b) at employer A
30,500 After-tax contribution to 403(b) at employer A (for mega backdoor Roth)
55,000 After-tax contribution to 403(b) at employer B (for mega backdoor Roth)
18,000 deferral to 457 for employer B
= 128,000 (55K for each employer plus additional 18K for 457)
Do you agree that with separate employers that each have 403(b) accounts, the annual addition limits would not be aggregated and thus allow for multiple annual addition limits (but of course still a single 18,500 elective deferral limit)?
WCI, I’m glad to have found this site. There is so much useful information on a variety of topics, I can’t thank you enough.
Could you clarify a point of confusion for me regarding multiple 401k’s. I was formerly in a group practice but now work part-time and receive 1099 income. When I left I rolled over my 401k retirement plan into an IRA at Fidelity. SInce this caused the pro-rata rule to kick in when I do my back door Roth IRA, I obtained an EIN and transferred my rollover IRA into a Fidelity solo 401k. Other than this rollover, I have not contributed further to this account due to RMD concerns when I turn 70.5 years.
Three years ago, I learned about the existence of Roth 401k’s. To take advantage of this, I sought to open a solo Roth 401k. Unfortunately, many firms including Fidelity do not offer this. T Rowe Price does allow solo Roth 401k accounts so I opened one there using the same EIN and have contributed the employee portion every year.
From the information in your post, it seems to me that this is OK as long as I don’t exceed the IRS yearly contribution limits. However, on an unrelated question I posted in the forum, I did discuss these two separate accounts. One of the replies suggested this is a “401k plan error” and I should have closed the Fidelity account and opened the T Rowe Price account with an amended adoption agreement. I’m confused, your thoughts on the matter?
I think that’s okay, but I don’t see why you wouldn’t just combine them for simplicity’s sake.
I have a 403B plan from a previous employer that has limited options. I also have a Vanguard individual 401K for 1099 income. Until reading this last post it had not occurred to me that I might be able to roll over the 403B into my individual 401K. I thought I could only roll this over to an IRA ( which I am avoiding because I want to continue making backdoor Roth IRA rollovers), or a current employer 401K or 403B. Do I have this option to roll over my old company’s 403B into my Vanguard individual 401K. And if so can I roll over both Roth and pretax components of my old company’s 403B?
Vanguard’s individual 401(k) doesn’t accept rollovers. eTrade and Fidelity do. Make sure you check with them about the Roth, but if not, you can just roll that into a Roth IRA.
Hi, your site is fantastic! I left a job last year and have about $200k in a 401k with high fees. I started an S-Corp last year and opened an individual 401k through Vanguard. Rolled over a small portion of the old 401k into my Vanguard roth, but don’t want to pay taxes on the rest. Thinking about opening up an e-trade or Schwab i401k to rollover the rest of the old 401k into. I already contributed to my Vanguard i401k in January. Do I have to wait until next year to open the other i401k? Or can I open it and just do the rollover, but only contribute for 2018 to the Vanguard one? Thanks for your help!
Probably better wait until next year. I don’t know that it is necessarily illegal to open another one this year, but it sure would make things more complicated than they need to be. If you don’t mind that complication, go ahead, but it seems to me that opening another 401(k) in the same year you contributed to another one might raise some eyebrows at the IRS.
I think I would just open an etrade one next January and roll both 401(k)s in there and start making my contributions there.
Hi – love your site!! I have a question involving switcing employers mid year and potential 401k tax consequences. Right now I have my 401k set to 50% pre-tax contribution (which automatically switches to after-tax, after 18.5k). My employer kicks in 2% regardless of employee contribution and additional dollar for dollar match up to 4%. I’m projecting to max out (due to March bonus) my 415 limit (55k) in April/May timeframe, after which my employer will keeping contributing the 6% match into a deferred income account.
If I leave this company (for example on July 1st or later) and get a new job with a completely separate, unrelated company and start contributing to their 401k plan (which has a dollar for dollar match up to 4%)… I have a couple of questions here:
1. After reading another question on your site, it sounds like I don’t have any issues with exceeding the 415 limit, because the two companies are completely unrelated. Is that correct?
2. If I want to take advantage of the new company’s 4% match and they only have a pretax contribution option, then I’ll obviously being exceeding the annual 18.5k elective contribution. Question: can I choose my ex-employer’s 401k plan to square up with on the excess contributions (over 18.5k) or does it have to be with the new company since it is my current company and more recent? Also any thoughts on if my ex-employer would disqualify me for any of the 6% match that was funded into the income deferral plan?
3. If the new employer offers after-tax contributions and I go that route, I’m thinking it should be smooth sailing because I wouldn’t be exceeding my 18.5k annual pretax limit and since the 415 limit (I think) is separate for each company, I won’t be exceeding that either and last I don’t believe I can exceed annual after-tax contributions, as long as with each employer, I don’t exceed the individual 415 limits. Am I thinking correctly here?
Thanks a ton for your input here!!
1. Yes.
2. I don’t think your old employer is going to let you contribute to their plan. Read your plan document to find out what happens to the match.
3. Yes.
Great thread. Thanks WCI for all you do!
Question: how to maximize my retirement accounts with this scenario:
Primary business is my solo LLC medical practice with two W2 employees, one of whom is my life-partner (currently unmarried) with whom I have one child.
Secondary business is currently my sole proprietorship through which I run income from a K1 (multi-partner physician LLC who get paid hourly for hospital coverage), total income here is greater than $55K/year. This business could easily be changed to an LLC to get a TIN. Other income could potentially also be run through this business.
Currently, I use a SEP IRA under the solo LLC, happily max out that contribution for myself, and then contribute 20% of my life-partner employee’s salary to her SEP IRA (this contribution was $13.5K in 2017). We will be required to match a SEP contribution for our other employee starting in 2019 (her third calendar year of employment with us).
I would rather not have to contribute 20% of salary to my other employee (it’s more benefit that I want to give).
Instead, can I convert the sole proprietorship to an LLC, get a TIN, and open an I401K to avoid contributing to our employee’s retirement (since she works for the primary business, not the secondary)? (I know that if I did this, my life-partner employee would no longer be able to get a SEP contribution, but I’m thinking of making her an independent contractor since that’s really how she operates now, then she can open her own I401K)?
Or would a cash balance plan be a potentially better option?
Thanks for any advice.
-HolisticFIRE
Are you a partner in a multi-partner physician LLC? If you are a partner, your plan for that income has to be opened under the umbrella of the physician LLC plan, unless you are paid as a 1099 contractor, in which case this income can go to your solo LLC. Because your solo LLC is 100% owned by you, you can NOT open a solo 401k for any 1099 income you might get from another source while not covering your employees, that would be a controlled group, so a plan has to cover everyone (unless it is for the partnership). If the multi-partner LLC has a 401k plan, you can probably set up an account under that plan for yourself, separately from your solo LLC (and no, you can’t move that income to your multi-partner physician LLC plan). However, the details are not clear, so the above is just hypothetical.
I think your best bet is to set up a 401k with profit sharing for your solo LLC where you can max out yourself and your partner, and give just enough to pass testing to the other employee. You can set up a CB plan for your solo LLC as well, and also benefit your partner. You can specify whether you want to benefit a specific employee as well, so this allows you to discriminate (while with a SEP you don’t have this option). And you can probably have the income from your multi-partner LLC go to your solo LLC as well, and this might be the best course of action.
Thanks, Kon, for your reply.
I am a partner in a multi-partner LLC, and that LLC does not have a retirement plan (and probably won’t).
When you say 401K with profit sharing, that’s not an I401K, right?
And I’m not familiar with “testing,” so I’ll have to study that.
Well you certainly can’t open an i401(k) and exclude your employees. Sounds to me like all your businesses are one big business with a single 401(k). I’m not sure how the multi-partner physician LLC plays in though and not sure that running that income through your sole proprietorship is a good idea at all. Why are you doing that? Because without that, it’s possible you could use the partnership’s 401(k) if any plus the one for your business(es).
I’m running the income from the multi-partner LLC through the sole proprietorship at the advice of my accountant. My understanding is that he likes to show two schedule Cs and spread expenses and deductions between the two like home office deduction. I’ll have to ask him again…
Here’s what you can do:
1) Find out about a partnership 401k. If that does not exist, maybe suggest they start one. This way you can contribute something to that plan. I would double check about the income going to your solo practice. If this was 1099 income, that would be fine, but I’m not sure it is a good idea with a partnership income going to your solo practice. Just like it is not fine to have your solo practice income going to the partnership – this way presumably you can avoid setting up a plan for the employee, and it sounds to me like this won’t be allowed.
2) Because this is a partnership where you own a percentage of the practice, if it is under 50%, you don’t have to worry about controlled group with your solo practice. Basically, we are talking about a 401k with profit sharing:
https://quantiamd.com/player/ygrmdgmtk?cid=1467
https://www.whitecoatinvestor.com/the-ideal-retirement-plan-for-your-practice
Not sure where to place this question— my wife just signed on as a very part time employee with a woman who owns her own dog walking business. We would love to have as much of her income be tax protected as possible. There is no 401k offering because her company is so small and my wife is the first employee. It doesn’t look like she would be eligible for a Solo 401k. Are there any other 401k-like options for us?
No. Not outside of an IRA and a taxable account anyway.
Very informative thread. Thanks WCI for all you do!
My situations is
Private 3 physician group practice with 15 employees. Do not have retirement plan currently. Each of the 3 physician had s corp which are in partnership. I get W2 from my s corp 130k and then gets k1 for remaining income
I get 1099 income from 2 different hospital system for ER call coverage. Its about 120K for which I have individual 401k as sole proprietory.
We want to open 401k for our practice to get more in retirement plan from our s corp income and will include our 15 employees. TPA is now asking to close the individual 401k , to open practice 401k. (Due to affiliated group ? )
Can you please guide me ? My goal is to put maximum income in retirement plan by keeping separate two 401k.
I appreciate you input. Thanks
So I guess the question is whether it is an affiliate group or not. Seems like an accountant is the right professional to ask that question to. Do you think he’s wrong?
Here’s the IRS reference: https://www.irs.gov/pub/irs-tege/epchd704.pdf
I”m not convinced he’s right, since you own 100% of one company and (if owned evenly) only 33% of the other. So I think you could have a practice retirement plan (for which you’ll need to include the employees) and also an i401(k) for your self-employed 1099 income, a completely separate business.
You certainly can’t have two i401(k)s, one for your S Corp and one for your 1099 work.
Thank you for the quick reply. I owned 33% of the group practice and 100% of sole Proprietorship. My CPA is telling me it will be considered affiliated group which I don’t agree with after reading this very informative blog. I do ER calls for which I get separate 1099. Do you have any good reference that I can show to my TPA and CPA to go forward for opening group 401k and keeping my individual 401k ? I read above reference but it does not specify my situation. Thanks
I don’t have something else, but I’d suggest a second opinion from another TPA and CPA. Have your CPA show you a reference!
There is not enough information here. First, what are the details of what the sole proprietorships do vs. what partnership does? Does the 1099 come from a different source than your partnership income? Even if the same source, do you use any partnership resources to provide service for your 1099 income? There is not a controlled group here for sure.
Partnership is a cardiology group practice which involve outpatient service and inpatient service. We bill to insurance and receive payment from insurance company. We pay practice expenses and remaining is income. Income goes to my personal s corp from where I get W2 (Reasonable salary) and remaining K1 distribution at the end of the year.
Sole Proprietorship is 1099 income comes from hospital (independent from my practice)
for covering ER calls (includes STEMI calls and General Cardiology calls) . I directly get paid by hospital for covering ER calls. I get fixed payment per ER call ( whether I get called from ER or not and irrespective of number of patient I see from ER). At then end of the year hospital send 1099 depanding on number of ER call I did for that year.
Now overlapping part is, when I am on ER call and if I end up seeing patients or doing procedures then I bill patient’s insurance through my S corporation which gets added to my income to s corporation. ( from where i get w2 and K1)
I hope this clarifies the structure.
Thank you
I have a question regarding the determination of “controlled groups”.
I am 50% owner of an anesthesia group that is contracted by a regional hospital corporation (“X Health”). We are a small group with 8 employees. Via our anesthesia group I contribute to the 401k we have established and with safe harbor match reach my $18500 limit. Then, via profit share, achieve the $55000 limit.
I also serve as medical director of the hospital’s medical group’s pain management center, whereby I am paid as an employee of the “X Health Medical Group” for 5 hours/month. As an employee of X Health Medical Group, I am offered the opportunity to contribute to a 403b and a 457.
My assumption, based upon the education that you have so wonderfully provided above, is that I may NOT contribute to the 403b but that I may contribute to the 457, up to an additional $18500. I assume this because X Health does not own our anesthesia group and I have no ownership in X Health Medical Group (even though X Health contracts our anesthesia group). Can you confirm this?
Additionally, I have created a separate S-corp into which I place income from pharmaceutical speaking engagements, medical board case reviews, AND income earned via a separate contract with X Health (not X Health Medical Group) for an additional 35 hours/month as medical director of the same pain management center.
Is it possible that I could also create an individual 401k for earnings from these sources or are there controlled group issues here because of how closely the work is in my various roles or in the ownership of the various sources of income?
Best case scenario:
Anesthesia group 50% and employee = Anesthesia Group 401k $55000
X Health Medical Group 457b = 100% of 5h/month income (which will be less than $18500/year)
Individual 401k employer contribution = $55000
Backdoor Roth = $6500
Spouse Backdoor Roth = $6500
????
Thank you for all that you do!
LOVE the podcast most!
Love the WCI website and blog. I need some advice. on this topic of multiple 401ks. I am a partner in a small democratic EP group and we are an LLC. I receive a K1. I contribute my 18000 to my 401k and the group contributes the additional amount to max out to $55k.
I am thinking of moonlighting for kaiser and they tell me I am eligible to participate in their 401k. I would be receiving a w-2 for my parttime work. My democratic group has no affiliation with kaiser and neither does my hospital. Does this mean I can max out the $55k at my main gig and also contribute to kaiser’s 401k?
Appreciate any advice.
Yes, you can use it. But you can’t contribute an employee contribution to it. All the money has to be “employer” contribution because you already used your employee contribution in the first one.
So if you could contribute $55k with profit sharing only at your group’s plan (which might require a redesign of the plan), then you can put another $55k including employee contribution into your W2 job.
I’m in a similar situation but have a solo 401K. Is there a limit to how much I can contribute on the “employer” side of the i401k if I contributed to Kaiser’s 401k?
20% of net earnings up to a contribution of $55K.
Hi WCI. I’m still a little fuzzy on one question. You and I actually went back and forth about this in 2014 in the original “beating the limit” post, but I wonder what you think now.
Suppose a doctor is working in a 50/50 Schedule K-1 partnership with another doctor, and has a SEP-IRA there (or a two-person 401k), and is also working as a sole prop or disregarded entity (or wholly-owned S Corp for that matter) . It seems to me the brother-sister controlled group does not apply, since you have to have 80% owned by same 5 people (which is the case) and GREATER than 50% identical (which isn’t the case).
https://www.irs.gov/pub/irs-tege/2013cpe_related_employers.pdf
Would you agree that this is not a control group?
There are something called affiliated service groups that can be an issue if there are any business relationships between the partnership and the sole prop. Assume there are none here.
And I will go ahead and say that neither of us intend to give anybody any legal or tax advice, and that we should all discuss with our own advisors.
Thanks for all the invaluable knowledge you keep sharing!
If they’re not controlled and not affiliated then you should get two limits.
Not a controlled group, but affiliated group determination is more complex, so I’d say that if your 1099 work has nothing to do with the partnership then you are most likely ok. If for example you use the same office space/resources and/or the same employer for 1099 work, then it is a lot more questionable.
New Private Practice
I just started a private practice (derm/Mohs) . Our business is structured as an LLC with an S-corp designation. I am the sole owner. My husband is re-entering the workplace (prior stay at home dad, former engineer/IT manager) as my practice manager. He is 49 & I am 40. We are massively behind in retirement savings.
I am looking at the options for small business retirement plans. We have 8 other employees (6 full time). In reviewing the options it would seem that the SIMPLE 401K would be the best choice for us, and I would like to have my employees contribute.
But for example, if my husband started a consulting company, could I hire his “firm” & then he would be able to open an Individual 401(k)?
I have set my salary at $375k & my husband’s is $56k as practice manager.
I want to do this properly of course, but I feel that we are so far behind in retirement savings (<$100K) due to missteps early on in life (withdrawing pre-med school 401K funds to move for fellowship, husband out of work after relocating to rural area for residency & then w/ him as stay at home dad for last 6 yrs.)
We have an accountant & an attorney of course, but I would really welcome WCI insight, esp if there are out of the box scenarios that we have not considered.
Thanks in advance!
This one isn’t a do-it-yourself project. You need a pro to help you decide which retirement plan to implement for your practice. It might be a SIMPLE IRA, but there’s not enough info there to say for sure. In some states, I believe your practice and your husband’s business would be considered all one big business, so he couldn’t have his own individual 401(k) even if you just contracted with his business instead of hiring him.
Bear in mind that “being behind on retirement savings” has only a little to do with your practice retirement plan. If you’re behind, the solution is to save more. If you can’t do it in a retirement plan, do it in a taxable account.
1) Whether you should do a SIMPLE or a 401k depends on how much you’d like to contribute, and there are definitely pros and cons to doing each one:
https://www.whitecoatinvestor.com/the-ideal-retirement-plan-for-your-practice
2) If you have children, you are guaranteed to be a controlled group (no children – still a controlled group in a community property state). So your husband can not open a solo 401k for that income most likely.
3) Your salary should not be nearly this high, at most it should be $275k, unless your net profit is 3x times that amount.
4) In order to determine whether a 401k plan is better than a SIMPLE IRA you will need an illustration that shows what the cost of employer contribution would be, and a design study with several illustrations to look at various types of scenarios (since you don’t have a history of employee contributions and you don’t know who will participate in your plan).
A SIMPLE is great if you only want to contribute about $40k or less, and you have a huge practice with lots of staff. If you want to max out a 401k plan, and your practice is not too large, a 401k plan might work out better, provided a design study shows that your employer contribution would be reasonable going forward. Unfortunately accountants are generally clueless about retirement plans, and so are attorneys, however, it is important that everyone involved works together.
Also, if you are truly behind in your savings, you will want to max out a 401k plan ($55k for yourself and at least $25k for your husband). And if your net is high enough (~$400k or higher), then you might even benefit from doing a Defined Benefit/Cash Balance plan, but only if you want to put away at least $100k on top of the 401k contribution. This might make sense when you pay down most of your debt and are about 10 years to retirement or so (or are simply in your highest earning years and just want to put away as much as you can).
Reading through the comments, I believe I’ve determined my wife can open a solo 401(k). Currently
W2 employee at non-profit hospital – $300k annual salary
403(b) – $18.5k employee contribution + $4.5k employer match
457(b) – Not contributing currently but now that I know what it is, plan on maxing out.
1099 income comes from a separate hospital system, 4 weeks of call/year, $21k annual pay
If I understand correctly, she should be able to contribute $4200/year into a solo 401(k)?
On another note, I believe you need an EIN to open a solo 401(k). What do most people in this situation do for that?
Sounds about right to me.
Get your EIN here: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
I’m a little unsure about this. What tax advantages are you getting contributing to a solo 401(k) as an employer? Is it just that the earnings are tax deferred? Or are they not taxed because you’re contributing after-tax dollars into it?
With regards to a solo 401(k), you’re both the employee and the employer. So in my case (and that of my wife, the co-owner of WCI), that means we get to put $110K a year into a tax-protected (tax-deferred in our case, but we could put up to $37K of that into a tax-free account if we wanted) and asset-protected account instead of paying the taxes on it and investing what’s left (~$60K in our case) in a taxable and non-asset protected account.
Hope that helps.
Yes, it makes sense. She maxes out her contributions as an individual on the 403(b), so she will only be able to contribute as the employer (20% of net self-employment income since she’s sole prop). What I was unclear on is what you can do with that employer contribution. I’ve read up and it comes as a deduction off your income, so I’m good now! This article got me headed in the right direction.
Let’s say we have a S-Corp and opened up a solo roth 401k. After couple of years, there is no revenue in S-Corp. So, we take up an outside job.
We have no employer match. Instead of signing up with the employer and contributing 18K there, can we just contribute to our solo roth 401k even though there is no revenue or w2 from the S-Corp this year? We value the investment flexibility with our solo roth 401k.