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Solo 401K Limits and Conversions
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1 Reply
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I am tripled “employed” and make various retirement account contributions:
1. Employer 1: Roth 457B – $23,000 Employee Contributions + $5,000 Employer Match
2. Employer 2: Traditional 401K – $23,000 Employee Contributions + $5,000 Employer Match
3. Self Employed – 1099 Income: approximately $25,000 per year as Employer Contributions.
**NOTE: 457B and 401K have separate contribution limits.
Questions:
1. What is the max I can contribute to Solo 401K in this situation (assuming sufficient 1099 income)? My understanding is $69,000 max across ALL 401Ks? Does that include employer and employee contributions BOTH or employer/employee are individually calculated? Again, assuming 2024 numbers + sufficient 1099 income, for Solo 401K contribution would it be:
a. Full $69,000 towards Solo 401K since it is all done as employer contributions?
b. $41,000 towards Solo 401K as employer contributions? $69,000 – $23,000 (Employer 401 Contributions) – $5,000 (Match) = $41,000.
c. Some other number that would be max allowed towards Solo 401K in this situation?
2. I was watching a video presentation by George Blower on your Youtube channel. He mentioned something about After Tax Contributions + In-Plan Roth Conversions. How to calculate max after-tax contributions? Assuming in-plan Roth conversions can only happen for after-tax contributions only, correct? In question 1 (above), whatever amount is allowed, can that employer contribution amount be all setup as after-tax and do in-plan conversion immediately?
Appreciate the insights. Thank you!
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QUESTION 1:
What is the max I can contribute to Solo 401K in this situation (assuming sufficient 1099 income)? My understanding is $69,000 max across ALL 401Ks? Does that include employer and employee contributions BOTH or employer/employee are individually calculated? Again, assuming 2024 numbers + sufficient 1099 income, for Solo 401K contribution would it be: a. Full $69,000 towards Solo 401K since it is all done as employer contributions? b. $41,000 towards Solo 401K as employer contributions? $69,000 – $23,000 (Employer 401 Contributions) – $5,000 (Match) = $41,000. c. Some other number that would be max allowed towards Solo 401K in this situation?
RESPONSE:
The Solo 401k owner can contribute up to $69,000 for 2024, assuming they have sufficient self-employment income.
Contributions to a 457(b) plan do not reduce how much one can contribute to a Solo 401k.
The employee contribution limit applies at the individual level, so if the Solo 401k owner makes the maximum employee contribution to a “day job” plan, they cannot make additional employee contributions to the Solo 401k.
However, the employer and after-tax contribution limits are not reduced by contributions to a “day job” 401k plan.
Therefore, if the Solo 401k owner has sufficient self-employment compensation, they can make up to $69,000 as employer and/or after-tax contributions to the Solo 401k.
For a self-employed business taxed as a sole proprietor, self-employment compensation is calculated as line 31 of Schedule C less one-half of the self-employment tax.
The employer contribution limit is 20% of self-employment compensation, provided that the sum of all contributions made to the Solo 401k (whether employee, employer, and/or after-tax) does not exceed the lesser of self-employment compensation or the overall limit.
The after-tax contribution limit is 100% of self-employment compensation, not to exceed the overall limit, provided that the sum of all contributions made to the Solo 401k does not exceed the lesser of self-employment compensation or the overall limit ($69,000 for 2024).
QUESTION 2:
I was watching a video presentation by George Blower on your Youtube channel. He mentioned something about After Tax Contributions + In-Plan Roth Conversions. How to calculate max after-tax contributions? Assuming in-plan Roth conversions can only happen for after-tax contributions only, correct? In question 1 (above), whatever amount is allowed, can that employer contribution amount be all setup as after-tax and do in-plan conversion immediately?
RESPONSE:
The maximum after-tax contributions to a Solo 401k are determined by the self-employment compensation and the overall contribution limit of $69,000 for 2024.
The after-tax contribution limit is 100% of self-employment compensation, not to exceed the overall limit, provided that the total contributions (employee, employer, and after-tax) do not exceed the lesser of self-employment compensation or the overall limit.
The Mega Backdoor Roth contribution process involves first contributing to a separate after-tax account and then the solo 401k owner may immediately move the funds to a Roth Solo 401k sub-account (or Roth IRA account).
The initial contribution to the after-tax account is not reportable, but the subsequent transfer to the Roth Solo 401k (or Roth IRA) is reportable on Form 1099-R, which we prepare as an optional free service.
Learn More:
- Solo 401k Contribution Limits and Types
- Multiple Retirement Plan Solo 401k Contribution Rules
- The Mega Back Door Roth Using a Solo 401k Plan
mysolo401k.net
solo 401k contribution limits and types
Two parts make up the annual Solo 401k contribution: employee salary deferral contribution and employer profit sharing contribution.
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