Contribute to Your Solo 401k Even if You're an Employee
The question arises, “Can I contribute to my solo 401k for a home-based business in addition to my 401k at my day job?”
The answer is generally “yes.”
Remember that your contributions are made of two parts: Your deferral (deducted from salary or earnings) and the sponsoring company profit-sharing contribution.
The salary deferral contributions (as in, deducted from Box 1 on your W-2) made at the day-job with your primary employer and the salary deferral contributions for your home-based business cannot exceed $15,500 (or $20,500 if you are 50 or over). IRC 402(g) limits these deferrals, but does not limit the number of plans in which you might participate.
Here is the good news: The profit-sharing contribution from your home based business is not limited by participating in other plans (unless you own both companies; day-job company and home based business company). We will leave the controlled corporation laws for another blog posting.
Let’s look at an example:
Age | | 45 |
W-2 Salary | day-job | 50,000 |
Net Income Sch C | home-based | 50,000 |
Elective Deferrals: | | |
W-2 elective deferral (you decide amount up to limit) | 10,500 | |
Extra you could defer from day-job net income | 5,000 | |
Company profit-share: | | 15,500 |
W-2 (25% of W-2 salary) | 12,500 | |
Maximum possible share from home-based (19% after | | |
self-employment tax) | | 9,293 |
| | 21,793 |
| | |
| Grand Total | 37,293 |
