W2 & 1099 Pay with two (2) different employer-SEP IRA & Solo 401K Employer contribution
Hi, Greetings! I have received my W2 & 1099 from two (2) different employers where W2 employer is ready to contribute towards SEP IRA (25% of my W2 pay). I have my Solo 401K but did not setup my election deferral before 12/31/2021 so is it possible to do my Employer contribution or not? or can I able to open and do my contribution (SEP IRA) for 1099. Please advise. Thanks
Permalink Submitted by Adam King on Sun, 2022-03-13 01:26
Confirm this for yourself, but as I understand it, the $58,000 401K limit is per employer. So, I believe: At your W2 job you can’t contribute as an employee, but your employer can match as much as they want, up to 25% of compensatin or the $58K limit for 2021, whichever is lower At your 1099 job (self-employed), you can contribute to your solo-401K as an employee (because the SEP doens’t have a salary deferral options), and you can contribute the (self-employed) employer profit sharing portion, which is 20% of modified net income = net income (Sch C line 31) – deduction for 1/2 SS&MC (Sch SE Line 13) -(other things I forget, but are rare).Then, IF your solo-401K plan allows for it, AND you have the extra accounts set up for it, you may also contribute the remainder of the (self-employed) $58K limit to a Non-deductible solo-401K, which you can then convert to a ROTH Solo-401K. This is the Mega Backdoor ROTH.
Permalink Submitted by William Tuttle on Sun, 2022-03-13 13:13
The maximum employer contribution = 25% of compensation =;
25% of W-2 Box 1 wages, or
20% of self-employed earned income (net earnings from self-employment) = business profit – 1/2 SE tax.
There is a compensation limit (2021 = $290K) on which those contributions can made.
There is one employee deferral limit across all 401k, 403b and SIMPLE IRA plans.
There is a separate employee + employer) annual addition limit (2021 = $58K for each unaffiliated employer.
While the SECURE Act changed the 401k plan adoption deadline from 12/31 to the businesses tax filing deadline including extensions. It did not change the requirement than an employee deferral election must be completed by 12/31.
While a 401k plan adopted after 12/31 has until the businesses tax filing deadline including extensions to make employer contributions. Employee deferrals are not allowed, because no employee deferral election for 2021 could have been completed.
While traditional IRA contributions are either deductible or non-deductible. 401k employee contributions are never referred to as “non-deductible.”
There are only traditional (pre-tax) deferrals designated Roth (post-tax) deferrals and after-tax contributions.
The latter are not available from mainstream one-participant 401k plan providers. A plan must feature employee after-tax contributions and in-plan Roth rollovers and/or in-service Roth rollovers.
I do not recommend these plans unless they involve a professional third party administrator (TPA). Most websites offering these plans a really just glorified 401k plan/adoption agreement resellers.