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Extra 401(k)

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  • Extra 401(k)

    Hi everyone,

    I am new to this site and have a somewhat basic question. I currently have full-time employment. However, I will be doing some extra weekend work with another practice as an independent contractor (it is allowed by my current arrangement). It won't be much work, maybe 1 weekend a month. Anyhow, is there any way to get extra tax deferment out of this? Can I have more than one 401(k)? For example, have both the 401(k) from my primary employer + a 401(k) I make for myself as an IC. Will this allow me to increase the overall amount I can defer?


  • #2
    You can have two 401(k)'s, but you cannot exceed the employEE contribution limit ($19,500 for 2020 and 2021). You can, however, contribute 20% of your income to your employER contribution (since you are your own employer with your moonlighting gig). Technically, it's 25% of your moonlighting adjusted net earnings, which comes out to be around 20% in most cases.

    One might argue that it's easier to do a SEP-IRA with only employer contributions, but if you ever quit your employment and become an independent contractor full-time, then this could have some effect on contribution limits if you are within a certain income threshold. Also, a SEP-IRA will be factored into pro-rata rules and will hinder your ability to do a backdoor Roth IRA conversion (without paying taxes on a portion). So it's best to open a Solo 401(k) and just make the employER contributions.


    • #3
      Short answer, yes you can have a separate solo 401k (a second 401k).

      Long answer is that based on how you asked the question you have a lot to learn. You only have one employEE max annually. Assuming you max that for your regular job, you can contribute 20% of your business profit from your other gig as employER contribution to a solo 401k. So if that profit is limited, isn’t 6 figures for example, you may want to look into a plan that allows voluntary after-tax contributions, and therefore the mega back door Roth option, to allow you to put more than 20% of your “business profit” into a tax-preferred space.


      • #4
        Yes, it is possible to get add’l tax deferment and tax savings depending on your circumstances, of which I know little. You really need to address this with your CPA (good luck, meant sincerely) and do a lot more reading on the forum and the blog between now and your tax filing deadline.

        Word of warning: do NOT get talked into an s-corp.
        Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087