I understand that employee contributions between my regular employer work 401K as an employee must be aggregated with Solo 401K employee deferrals that I establish for my self-employed business income up to the $26K annual limit since I’m over age 50. My wife and I have a separate company that we are the only employees of and are looking to set up a 2020 Solo 401K. I also work as an employee for a separate employer offering a 401K that I currently participate in at this time. A few questions below.
- May I decide to reduce my employee contributions to my employer 401K and then choose to elect employee deferrals into the Solo 401K for the difference between the employer work plan and my Solo 401K as long as I don’t exceed the maximum?
Correct but contributions to the solo 401k plan can only be based on earned income generated from the self-employed business not from the day-time job employer. In other words, the IRS plan rules do not allow for the use of earned income (typically W-2 wages) generated from a day-time job employer for making contributions to an owner-only retirement plan such as a solo 401k plan.
2. Any employer Solo 401K match and profit sharing can be added to my Solo 401K? Same with profit sharing contributions, they can be only be calcuated based on earned income generated through the self-emplooyed business not the day-time job employer plan.
Same with profit sharing contributions, they can be only be calculated based on earned income generated through the self-employed business not the day-time job employer plan.
3. Does my separate company have to be structured a certain way to have a Solo 401K (ie, corp, s corp, LLC)?
The self-employed business sponsoring the solo 401k plan can be any business entity type provided the individual is an owner-only employee of the business and the business does not employ any full-time W-2 employees. See IRS Publication 560 for more information.