The short answer is it does not. Any eligible individual who has compensation may contribute to an IRA, whether or not they participate in a solo 401k plan. However, participation in a solo 401k plan may affect the individual’s ability to deduct a traditional IRA contribution; as a result, you may have to treat it as non-deductible IRA contribution.
For example, Sarah has a solo 401k plan that is sponsored by her self-employed S-corporation. For year 2022, Sarah makes contributions to her solo 401(k) plan and is therefore considered to be an active participant for tax year 2022. Consequently, Sarah’s ability to deduct her traditional IRA contribution for 2022 will be determined by her tax filing status (single, married filing jointly or married filing separately) and her modified adjusted gross income (MAGI).
2021 IRA Contribution and Deduction Limits – Effect of Modified AGI on Deductible Contributions If You ARE Covered by a Solo 401k plan.
If you contribute to a solo 401k plan, use this table to determine if your modified AGI affects the amount of your IRA deduction.
|If Your Filing Status Is…||And Your Modified AGI Is…||Then You Can Take…|
head of household
|$66,000 or less||a full deduction up to the amount of your contribution limit.|
|more than $66,000 but less than $76,000||a partial deduction.|
|$76,000 or more||no deduction.|
|married filing jointly or qualifying widow(er)||$105,000 or less||a full deduction up to the amount of your contribution limit.|
|more than $105,000 but less than $125,000||a partial deduction.|
|$125,000 or more||no deduction.|
|married filing separately||less than $10,000||a partial deduction.|
|$10,000 or more||no deduction.|
|If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the “Single” filing status.|
Who Fills out the Conversion Form QUESTION:
In addition to not contributing to their solo 401k or their full-time employer 401k, box 13 “Retirement Plan” will need to be left unchecked See the following instructions found on page 9 of Form W-2. https://www.irs.gov/pub/irs-pdf/fw2.pdf