No announcement yet.

solo 401k question

  • Filter
  • Time
  • Show
Clear All
new posts

  • solo 401k question

    I'm three years out of training. Since I became an attending, my wife has been staying at home with our son. Recently she started an Etsy shop for fun and it has really taken off. There's 4.5 months left in 2016, but she's probably on pace to make 15-25k.

    We don't really "need" the extra money, so it would probably go into savings. Since she's now self employed, it should open up a new possibility for an additional tax advantaged investment account. I already max out my 401(K) at work, contribute to a defined benefit plan, and have backdoor Roths for both of us.

    I was looking at opening a solo 401k for her and just wanted to make sure I have the rules straight.

    - Up to 18k (employee contribution), she can put all of the money she earns into the account tax free.

    - After that, the "employer contribution" is confusing. It cannot exceed 25% of income. Is that her total income or income - "employee contribution"? (i.e. if she made 25k could she put in 24.25k (18k + (25k x .25)) or  19.75k (18k + ((25k - 18k) x .25))?

    - She has an old 401k from her employer when I was in residency. For a while we thought she might work remotely for them, so I never rolled it over. That's probably never going to happen at this point. If she rolls that into this new solo 401(k) this year, that won't affect how much she can contribute, correct?

    - Is a solo 401(k) is the right instrument for this situation? Any better ideas?


    Thanks a lot. I've learned so much from this blog and forum.



  • #2

    1. She can contribute the 1st $18k of profits (gross income less deductions).

    2. No, that is 20% of her net income adjusted for 1/2 of SS on that income. The $18k is not a factor. You can find many calculators online.

    3. Correct, it will have no bearing on the SOLO-k contributions.

    4. Yes, the SOLO-k is your best option. She should consider hiring you for some kind of administrative task if the business continues growing so you could also contribute to a SOLO-k.

    5. Highly recommend you set up a home office and use a CPA for tax preparation.

    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


    • #3


      • #4
        I also have a few individual 401(k) questions. I hope it's ok to piggyback on this thread. My household work situation is making retirement planning difficult, especially since I'm new at all this.


        I am a new attending at a W2 job with a 401(k) + 5% match and mediocre investment options. I have access to a 403(b) and 457 at the first W2 job that I am not currently using, plus I have a second W2 job at which I do not yet meet requirements to use their 401(k). I also have two different 1099 jobs, from which I expect to make about $23k total. I only recently learned about the possibility of having both employer and individual 401(k) accounts, so I have already put about $12k of my employee contribution into my initial W2 job's 401(k). My spouse and I max out an HSA and (soon-to-be-backdoor) Roth IRAs. We're also paying down loans, living like students, etc. All of my jobs are medical, at which I work as a physician.

        1) Is it correct that I can open an individual 401k and fund it with ($18k - $12k =) $6k of employee contribution plus 20% of the profits-minus-SS I'll make this year from my 1099 jobs? (One of my W2 jobs helps pay for my license & other fees, so I don't think I'll have many deductions either.)

        2) Do I need to do anything to address the fact that the $23k is coming from 2 different jobs?

        3) Is there a better way for me to navigate my retirement options? For example, I'm thinking about only putting in enough to get the match at my W2 401(k) next year, if I can make more at the 1099 jobs.


        My spouse is the sole owner of a PLLC that pays via W2 and is taxed as an S-corp. (I don't really know what that means, to be honest.) The business is not very profitable, and there is no current retirement plan. The employees are part-time and work fewer than 1000 hours in a year. I do not do any work for my spouse's business.

        4) Can my spouse open an individual 401(k)?

        5) If we need it to be 1099 pay to set up an individual 401(k), can this business structure do that, or is there a better way to set up this business with respect to retirement options?

        6) Does it improve or just complicate the situation if I do start working at my spouse's business? Or am I better off hiring my spouse for admin tasks at one of my 1099 jobs, if there's no individual 401(k) option for my spouse with the way the business is currently set up?


        Thank you so very much for your help.


        • #5
          Lot of Q's for a piggyback. I'll answer but recommend you post any other questions on a new thread, as you'll get a lot more views. iow, because I am the only user who responded to the OP, the OP and I are the only people who w/b notified of your "followup" question.

          1. You are correct.

          2. No, but i'm not exactly sure what you mean.

          3. Possibly

          4. Yes but contributions will be limited to her earned income from the business.

          5. W2 is fine. As a business owner managing the business, 1099 would not be appropriate.

          6. You stated that your spouse's biz is not very profitable. Plus you w/need to work ? 1,000 hours in it to qualify to participate if other p.t. employees d/n qualify. Therefore, d/n recommend this option.

          You really need to sit down with a fee-only CFP and/or CPA to analyze your options and work on a plan. With the right person, it will be money well spent.
          Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087