Multiple Solo 401k Plans | SEP and Solo 401k Plan

All solo 401k plans are qualified plans, whether consisting of pretax or Roth after tax contributions, that are treated as retirement plans that offer a tax-favored way to save for retirement. You can deduct contributions made to all pretax solo 401k plans. Contributions and earnings on pretax Solo 401k contributions are generally tax free until distributed at retirement, while contributions made to are not tax deductible but the earnings grow tax free.

More than one Solo 401k plan

While the IRS rules surrounding all plans for the self-employed (e.g., SEP IRA, SIMPLE IRA and Solo 401k plans), are found in the internal revenue code (IRC), they are more readily accessible under IRS Publication 560, Retirement Plans for Small Businesses.  Pursuant to IRS Publication 560, you can have more than one qualified plan (e.g., multiple Solo 401k plans), but your contributions to all the plans must not total more than the overall limits.

IRS Publication 560 goes on to say that if you contribute to multiple defined contribution plans (e.g., multiple Solo 401k plans), you must add your contributions to all defined contribution plans maintained by you. Therefore, if you have multiple businesses from which you generate self-employment income and you setup a separate for each, your annual contributions to both solo 401k plans are limited to the annual solo 401k contribution limit for that year, which is $51,000 for tax year 2013 plus a catch-up amount of $5,500 for those self employed individuals that turn 50 in 2013 or are over 50 years of age.

SEP IRA and Solo 401k

Note that if you were to setup a SEP IRA for one business and a Solo 401k plan for the other, because a SEP also falls under the defined contribution umbrella, the same rules apply (i.e., your contributions to the SEP must be added to your contributions to the Solo 401k sponsored by your other self-employed business).

Closing Comments

Part-time work counts as self-employment income. Therefore, even if you have a full-time job and participate in that employer’s 401k plan, 403b, 457 or Defined Benefit plan, you will generally qualify to for your part-time business.

If you have multiple self-employed businesses and have only established a Solo 401k for one, only the earned income from that business can be considered for that Solo 401k plan.

Earned income is net earnings from self-employment derived from a business in which you performed services that helped to generate the income.

 

If you are a writer or publisher or inventor, royalties would be considered earnings from self-employment because your personal services led to that income. However, capital gains do not qualify as earned income for purposes.

To learn more about the personal 401k plan, including how to invest in real estate, visit: 

http://www.mysolo401k.net or call

800-489-7571