QUESTION: I really enjoy reading your very informative blogs surrounding the solo 401k rules! Do you know if you can have a PSP and a solo 401k?
ANSWER: I’m assuming in my answer the following:
- You are self-employed (e.g., independent contractor) and are also employed full-time by a company such as Apple or Home Depot, for example.
- You are currently contributing to your full-time employer’s Profit Sharing Plan (PSP) and would also like to setup a solo 401k for your part-time, independent contractor business, which is an unrelated business from your day-time, full-time job.
Based on the above assumptions, yes you can contribute to a PSP and a solo 401k plan. Following example from the IRS.gov website sheds light on this.
Click here to view the IRS web page containing the following example:
Example 1: Greg, 46, is employed by an employer with a 401(k) plan and he also works as an independent contractor for an unrelated business. Greg sets up a solo 401(k) plan for his independent contracting business. Greg contributes the maximum amount to his employer’s 401(k) plan for 2012, $17,000. Greg would also like to contribute the maximum amount to his solo 401(k) plan. He is not able to make further elective deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $17,000. He has enough earned income from his business to contribute the overall maximum for the year, $50,000. Greg can make a nonelective contribution of $50,000 to his solo 401(k) plan. This limit is not reduced by the elective deferrals under his employer’s plan because the limit on annual additions applies to each plan separately.
Thanks,
Linda in Oregon
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