Solo 401k Options While Currently Employed
Many are familiar with a 401k plan. In fact, if you are currently employed, you are may already be contributing to one. Did you know that owning a side business can also give Solo 401k options?
Solo 401k options
Having one employer may not be enough for an entire family’s expenses. A side business is a great opportunity to make additional income, even while still being a full-time employee.
If this is your current situation, you may have the opportunity to adopt a Solo 401k plan for your side business. The Solo 401k option maximizes your ability to make contributions. You can make contributions to your Solo 401k from your side business while making contributions to your employer 401k from your full-time job.
Solo 401k eligibility
The Solo 401k has two eligibility requirements:
- The presence of a self-employment activity
- The absence of full-time staff, besides yourself and potentially, your spouse
This means that you generate income from your side business, but you don’t employ full time staff. Part-time employees may not affect eligibility if they work for 1000 hours or less within the first three years. Your side business can organized as a sole proprietorship, partnership, LLC, or corporation.
Contributions in the Solo 401k
The total maximum 401k contributions for 2023 is $66,000 if you are under the age of 50 ($73,500 if you are age 50 and above).
Of that total, the maximum employee contribution for 2023 is $22,500. The maximum employee contribution is per person, not per plan. If you made a $10,000 employee contribution to your employer 401k, you could only make a $12,500 employee contribution to your Solo 401k. All contributions must be made from your compensation from the adopting business of the plan.
Navigating the different providers
Not all Solo 401k providers establish the same type of plan. Some providers establish custodial Solo 401k accounts. These allow you to contribute to the plan from your side business income, but not control the assets of the plan.
Sense Financial’s Solo 401k gives you full control over its assets. This allows you to make alternate investments such as real estate and precious metals in your plan. Your Solo 401k also has a participant loan feature. Those funds can be used to invest back into your side business or for whatever purpose you may need.
December 11, 2018 @ 9:38 am
Very informative Dmitriy,
I am still trying to figure something out. I hope you can help.
Assuming one meets the conditions above by opening an LLC while working as an employee elsewhere. Can person deduct the solo 401K admin fees on Schedule C?, and can person continue to deduct them in the future if the LLC has no income?
March 6, 2019 @ 11:04 pm
Adam, the Solo 401k admin fee is a legitimate business expense and you should be able to deduct it on Schedule C if you file as sole-proprietor. If the LLC has no income then the legitimacy of the business is in question, I suggest you consult with your CPA.
October 21, 2019 @ 8:23 pm
Thanks for the info…. question… I have a good paying full time job and I want to take advantage of the sole 401k because of the self directed aspect. That said, can I run a open up a trading account and consider that my small business (I’ll be loading up on growth/dividend stocks)?
November 7, 2019 @ 1:21 pm
In order to establish a Solo 401k plan you must have legitimate business in place. Just opening up a trading account doesn’t mean you have a business, it depends… I can’t accurately answer your question without knowing all the details pertaining to your situation. Feel free to contact our office and schedule complimentary phone consultation to discuss this further.