two jobs, two 401ks...?

[mountaindentist]

Good evening everyone! New investor here.

I have 2 jobs- each offering profit sharing.

Employer 1 offers a Fidelity 401k matching 3% of my compensation as reported on my W-2

Employer 2 offers an Empower 401k matching up to 4% of compensation. This is a 1099 job.

Is it legal to have two separate 401k accounts under these circumstances? Any advice is appreciated, thanks in advance!

I just paid off my final note on the student loans this year. This will be my first time investing in a 401k.  I have a Roth IRA with Vanguard.

[TheAbacus]

My understanding is that the total 401k contributions per annum need to be restricted to $18,000 - even if this is across more than 1 employer.

You might find this post written by WCI helpful.

 

Per his advice, you should:

1. Contribute up to full match with Employer 1 AND 2.

2. Calculate how much short of $18,000 you would be.

3. Contribute the amount you calculated in step 2, to whichever 401k offers better fund options / lower administrative fees.

 

I will await replies from more knowledgeable members of the forum.

[The White Coat Investor]

mountaindentist wrote:

Good evening everyone! New investor here.

I have 2 jobs- each offering profit sharing.

Employer 1 offers a Fidelity 401k matching 3% of my compensation as reported on my W-2

Employer 2 offers an Empower 401k matching up to 4% of compensation. This is a 1099 job.

Is it legal to have two separate 401k accounts under these circumstances? Any advice is appreciated, thanks in advance!

I just paid off my final note on the student loans this year. This will be my first time investing in a 401k.  I have a Roth IRA with Vanguard.

Click to expand...

Yes, it's legal. The key for you, however, is going to be splitting your $18K employee contribution between the two 401(k)s to ensure you get your entire match.

By the way, if it is a "1099 job" that means you are self-employed and don't have to use their 401(k), you can use your own individual 401(k) instead. And it also means you don't qualify for any match. So you need to figure out exactly what is going on there. It seems unlikely that as the employer you can self-match into another company's 401(k). Some partnerships work that way (like mine) but you're paid on a K-1, not a 1099.

Well done on your loans.

[childay]

Agree with WCI not sure how you can contribute to a job 401k if you are paid via 1099.  You could and should of course set up a solo401k instead.

[spiritrider]

Likewise, I do not believe an independent contractor 1099 or otherwise can contribute to a qualified plan.

The only plan I am aware of that an independent contractor can make contributions to is a 457b plan and I am a little sketchy on this, but I believe the employer must have separate plans for employees and contractors.

[mountaindentist]

Thanks so much for the information! This was very helpful. What companies would you all recommend using to open up a new 401k? I looked on Vanguard and cannot find that option.

[Sergio Estavillo]

mountaindentist wrote:

Thanks so much for the information! This was very helpful. What companies would you all recommend using to open up a new 401k? I looked on Vanguard and cannot find that option.

Click to expand...

Here's a link to Vanguard's Individual 401k:

https://investor.vanguard.com/what-we-offer/small-business/overview

Fidelity if you care to compare:

https://www.fidelity.com/retirement-ira/small-business/self-employed-401k/overview

[conniebird]

Vanguard's solo K is a bit limited at this time. They do not take rollovers (which is a big reason to have a solo K), and you can only invest in their investor class funds. Fidelity or TDA or etrade is prolly better. TDA offers a roth 401k option too.

[DMFA]

Remember there is a difference between elective deferrals and employer contributions.

Elective deferrals: total $18,000 across all 401k accounts

Employer contributions: up to a total of $53,000 (minus elective deferrals to that account) up to 20% profit if self-employed (or 25% of your own W-2 if S-corp)

So your elective deferrals should be done to maximize matching (prob the W-2 job), and your other one (prob your solo) should be "employer" contributions equaling 20% of net profit on your contractor job.

[DMFA]

Also read this for guidance: https://www.irs.gov/retirement-plans/one-participant-401k-plans and if you want the specifics, check out IRS pub 560.