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Multiple 401ks - Max Employer Contribution?

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  • Multiple 401ks - Max Employer Contribution?

    Hi there, first time posting here. I've searched quite a bit on the topic and keep finding conflicting advice. I'm hoping somewhere can follow my logic and confirm or correct my thought process. Thank you for any help in advance.

    Question: What is my max contribution to my Solo-401k for year 2021?
    SubQuestion: How are the IRS limits on 401k contributions calculated for multiple 401ks?

    Background: I have two sources of income from 2021 with a corresponding 401k. First is a W2 job with an employer sponsored 401k with match. W2 is only about 10% of my total income (~$40,000 gross). Second source of income is 1099 independent contracting work through a second physician group, about 90% of income (~$440,000). I have a Solo-401k to make tax deferred contributions from the 1099 work. Both 401k plans are serviced through Fidelity.

    In 2021, my contributions have been as follows:
    W2 Employer 401k Plan -- $15,351 employEE deferral contribution, $11,766 employER contribution
    1099 Solo-401k Plan -- $2,000 employEE contribution, $30,000 employER contribution

    My initial (apparently wrong) understanding was that the $58k was the HARD limit for any and all total 401k contributions for year 2021. After doing more research, (both on this website and others), I've come across several other opinions as to how much I can contribute total.

    My current understanding is this:
    - I've nearly maximized my total employEE contributions for 2021 ($15,351 + $2000 = $17,351). Technically, I could contribute an additional $2,149 to my Solo-401k as an employEE contribution to hit $19,500, which is the total employEE contribution over any and all 401k accounts, combined.
    - I still have room to contribute to my Solo-401k with employER contributions. I've currently only contributed $32,000 total ($2,000 as employEE, $30,000 as employER). As the Solo-401k is NOT from a "related employer," I could still contribute up to a maximum of $58,000 (IRS limit for any single one 401k). Thus I could still put in $26,000 as employER contribution. This assumes I did not make any additional employEE contributions. Given that I made $440,000 in 2021, the 20% cutoff (or $88,000) would not apply.

    Is the above accounting correct?

    My main source for this has been the IRS website, which provides a very similar situation to mine as a concrete example (albeit using 2020 limits):
    Example 1: In 2020, Greg, 46, is employed by an employer with a 401(k) plan, and he also works as an independent contractor for an unrelated business and sets up a solo 401(k). Greg contributes the maximum amount to his employer’s 401(k) plan for 2020, $19,500. He would also like to contribute the maximum amount to his solo 401(k) plan. He is not able to make further elective deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $19,500. He would also like to contribute the maximum amount to his solo 401(k) plan.

    Greg is not able to make further elective salary deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $19,500, to his employer’s plan. However, he has enough earned income from his business to contribute the overall maximum for the year, $57,000. Greg can make a nonelective contribution of $57,000 to his solo 401(k) plan. This $57,000 limit is not reduced by the elective deferrals Greg made under his employer’s plan because the limit on annual additions applies to each plan separately.

    However, I've seen conflicting advice on various other financial blogs. A common answer I've seen is that total employEE contributions would be subtracted from any additional 401k maximum, making the maximum EmployER contribution $38,500. When I called Fidelity to ask them this question, they arrived at a similar answer --- but this seems to directly contradict the example given on the IRS website above!

    Can anybody here help provide some clarity? Am I missing anything or misunderstanding something?

  • #2
    The quoted paragraphs from the IRA are not inconsistent, because there are no employee deferrals to the one-participant 401k plan
    1. Your W-2 wage = $40K, with $15,351 in employee deferrals.
    2. There is one employee deferral limit (2021 = $19.5K, + $6.5K >= age 50 = $26K) across all 401k, 403b, and SIMPLE IRA plans.
    3. Your remaining one-participant 401k employee deferrals = $19,500 - $15,351 - $2,000 = $2,149.
    • The maximum calculated self-employed employer contribution = 20% of self-employed earned income (net earning from self-employment) = business profit - 1/2 SE tax.
    • Calculation of your self-employed earned income
      • From Schedule SE with $40K wages and $440K business profit, your 1/2 SE tax ~= $12,26.
      • Your self-employed earned income = $440K - $12,266 = $427,734.
    • Calculation of your maximum employer contribution
      • There is a compensation limit (2021 = $290K) on which to calculate maximum employer contributions.
      • Your maximum calculated employer contributions are $290K * 20% = $58K.
    • Your employer contributions are limited by the annual addition limit to $58K - $4,149 total employee deferrals to the one-participant 401k = $53,851.
    Last edited by spiritrider; 01-06-2022, 05:12 PM. Reason: Used the wrong value for the one-participant 401k employee deferrals.


    • #3
      Thank you so much for your time and reply, spiritrider.

      To clarify on this statement:
      • Your employer contributions are limited by the annual addition limit to $58K - $19.5K total employer deferrals = $38.5K.
      Did you mean to say 19.5k total employEE deferrals? So the total amount I can put in the solo401k as employER contribution is 58k, minus this 19.5k amount, yes?

      In my circumstance, I've put 30k in employER contributions (side note, I believe this is also called "non-elective contributions"?) personally into my solo-401k. So you're saying that I'd have an additional 8.5k I could put in the solo-401k then? This is congruent with what Fidelity told me, but I could not follow their logic over the phone.

      Truly appreciate your help.


      • #4
        I corrected my mistake. You can make $52,851 - the $30K you already contributed = $23,851 in additional employer contributions.

        Fidelity either misunderstood or gave you incorrect information like I originally did. Your W-2 employer employee deferrals are not included in your one-participant 401k annual additions.


        • #5
          Oh, that's quite a difference. But that is now in line with what the IRS website example portrays.

          Thank you !