Is it possible to possess both a Solo 401k and a conventional 401k?

by | Jun 5, 2023 | 401k

Is it possible to possess both a Solo 401k and a conventional 401k?




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Can I have a Solo 401k and a regular 401k? This is a common question asked by individuals who have both self-employed income and traditional employment income. The answer is yes, you can have both types of retirement accounts, but there are some guidelines to follow.

A Solo 401k is a retirement plan designed for self-employed individuals or businesses with no full-time employees other than the owner(s) and their spouse(s). It allows for both employee and employer contributions, with a maximum contribution limit of $58,000 for 2021. This includes a $19,500 employee contribution limit and a $38,500 employer contribution limit. The contribution limit may be higher if you are 50 or older, as catch-up contributions are allowed.

On the other hand, a regular 401k is a retirement plan offered by employers to their employees. Employee contributions are made through salary deferral, while employer contributions may be made in the form of matching contributions or profit-sharing contributions. The contribution limit for employee salary deferral for 2021 is $19,500, while the total contribution limit (including both employee and employer contributions) is $58,000.

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If you have both types of retirement accounts, you must ensure that you do not exceed the maximum contribution limit for both plans. This means that the combined total of all your contributions to both plans cannot exceed $58,000 for 2021. Additionally, if you are over 50 years old, you may be eligible to make additional catch-up contributions to both plans, up to $6,500 each.

It is also important to note that if you have both a Solo 401k and a regular 401k, the contributions you make to each plan will be treated separately for tax purposes. When you withdraw funds from these accounts in retirement, you will need to pay income tax on the distributions you take, based on the type of account the funds came from.

In summary, having both a Solo 401k and a regular 401k is possible, but it is important to keep track of your contribution limits and ensure that you are not exceeding them. Planning ahead and working with a financial advisor can help you make the most out of both types of retirement accounts.

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