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Self-Employed 401k – How would my solo 401k affect my current day job 401k plan?
QUESTION:
So I have a regular 401k for my employer, whom I still worked for. My wife and I now have an LLC in California taxed as an S-corp. My wife currently doesn’t have any outside employment. We both will be “paying ourselves” through the LLC. I do not want my solo 401k to change or affect my regular 401k with my employer. How would a Solo 401k affect my current 401k plan with my employer?
RESPONSE:
First, please note that an individual who has a W-2 “day job” and is also separately self-employed (e.g. “side hustle”) with no W-2 employees working for any business owned by such person (or a spouse if any) may certainly set up a solo 401(k).
Moreover, the fact that such person has a solo 401k will not prevent such person from continuing to participate and contribute to the “day job” 401k plan provided that the total amount of employee contributions (salary deferrals) made to both the employer plan (e.g. “day job” 401k) and any employee contributions made to the Solo 401k doesn’t exceed the contribution limit (i.e. $22,500 for 2023 or $30,000 if such person is 50 or older).
While the employee contribution limit applies across both the “day job” 401k and Solo 401k, the employer Solo 401k contribution limit as well as the voluntary after-tax Solo 401k contribution is not impacted by contributions made to the “day job’ 401k plan. For example, even if one makes the maximum employee contribution (salary deferral) to their “day job” 401k such person can maximize employer (profit sharing) contributions to the Solo 401k and/or Voluntary After-Tax Solo 401k contributions provided that they have the self-employment income to justify such contributions.
