solo 401(k)
I have a client who is a W-2 employee and eligible for a 401(k) at his employer. He also has a side business as a graphic designer (1099). Can he also do a solo 401(k) for his 1099 income?
I have a client who is a W-2 employee and eligible for a 401(k) at his employer. He also has a side business as a graphic designer (1099). Can he also do a solo 401(k) for his 1099 income?
Permalink Submitted by mk foss on Thu, 2010-04-08 21:38
He is eligible for two retirement plans. Assuming that he doesn’t own more than 5% of his main employer, he would also qualify for a greater limitation than if he was only covered by one plan.
The deferral amount for a 401k plan can only be used once. So if he’s maximizing the deferral with his employer, there’s no room for additional deferrals for the business 401k. He can allocate the $16,500 between the two businesses any way he chooses though.
If he’s going to defer the maximum amount with his employer, he may just want a SEP for the side business. With a SEP no Form 5500-EZ requirement exists. A 401k covering only one person files 5500-EZ when the assets exceed $250k and must file when the plan terminates even if no previous returns were required.