Does contributing to my Solo 401k Plan affect my eligibility to contribute to my IRA?

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…
single or
head of household
$66,000 or lessa full deduction up to the amount of your contribution limit.
more than $66,000 but less than $76,000a partial deduction.
$76,000 or moreno deduction.
married filing jointly or qualifying widow(er)$105,000 or lessa full deduction up to the amount of your contribution limit.
more than $105,000 but less than $125,000a partial deduction.
$125,000 or more no deduction.
married filing separatelyless 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:

It appears your article infers that if one does NOT contribute to their Solo 401k plan for the tax year, they are not considered an active participant for purposes of deducting an IRA contribution. That makes sense, but I can't seem to find anything definitive on what constitutes active participation in a Solo K. Would you happen to know the answer or have a cite?

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

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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