Can I have a 401(k) and a Solo 401(k)

Got a business in addition to a full-time job? You could be missing out on extra retirement savings.

A Solo 401(k) plan is a 401(k) made available specifically for solopreneurs. The beauty of a Solo 401(k) plan is you do not need to be a full-time solopreneur to benefit from it. All you need is a form of self-employment income and no full-time employees. If you have a startup or side hustle in addition to working full-time then you are eligible. 

Read on to learn more about how a Solo 401(k) impacts your contribution limits.

Can you have a Solo 401(k) and a regular 401(k)?

The short answer is yes, you can have a Solo 401(k) plan in addition to a 401(k) plan from a full-time job. 

This is possible because the IRS views your role as an employee (under the full-time job's 401(k)) and your status as a business owner (under the Solo 401(k)) separately. In other words, wearing these two hats allows you to benefit from both retirement plans simultaneously.

This opens up a world of retirement savings and tax deduction possibilities that are otherwise unavailable if you only stick with your employer-provided plan.

Can you contribute to a Solo 401(k) and a regular 401(k)?

There are limits to what you can contribute to a 401(k) plan, but having a Solo 401(k) plan (or multiple) makes things a bit interesting. 

The IRS sets the limits for personal contributions as an employee to $22,500 per year (as of 2023). That means if you contribute $22,500 to your employer-provided 401(k) plan, you have maxed out your employee contribution to your Solo 401(k) plan and any other plan for the year.  The IRS sets personal contribution limits per employee, however, employer contributions are limited per plan. You can still contribute to your Solo 401(k) plan from the employer side, giving you access to more retirement savings.

This makes a Solo 401(k) a game changer for retirement savings when combined with a 401(k) plan from your job.

Can you have multiple Solo 401(k) plans?

The IRS sets a limit to personal contributions but this limit does not restrict your contributions from the employer side, so naturally you might wonder “What if I had multiple businesses, could I contribute even more?”

The answer is, it depends. 

As you can imagine, the IRS tries to prevent someone from exploiting the benefits of multiple employer-side contributions. To do this, the IRS only allows you to separate out your employer-side contributions if the businesses are unrelated. 

The technical term used here is if they are part of a “control group.” There are a few examples of what this means.

Parent/child

This is when a parent business (corporation, sole proprietor, LLC, partnership, etc.) owns 80%+ of another business.

Brother/sister

This is where 5 or fewer common owners (individuals, estates, or trusts) own a controlling interest (again, 80%+) of two different businesses.

Affiliated service

The IRS expanded the definition to include affiliated services. The rules here are quite broad and complex but can be boiled down to if two somewhat interconnected businesses. 

If your two businesses do not fall under these categories, then they are seen as unrelated by the IRS and you are free to contribute up to the employer-side limit to each of them. Otherwise, contributions to either business will count towards the same limit.

Remember, managing more than one solo 401(k) plan can be complex, requiring careful tracking of contributions and an understanding of tax implications. Fortunately, the SEPira(k) platform makes managing your Solo 401(k) (and staying compliant) a breeze.

Benefits of having a Solo 401(k) and a regular 401(k)

Beyond increasing your total yearly contributions, there are many benefits to having a Solo 401(k) plan in addition to a regular 401(k) plan.

Increased Saving Potential

As we’ve covered, because you can contribute as an employer and employee, a Solo 401(k) plan allows you to increase above what you normally would be able to with a regular 401(k) plan.

Tax Advantages

Solo 401(k) contributions can be made on a pre-tax basis, which can lower your current taxable income. Some plans also offer a Roth option, allowing you to make contributions with after-tax dollars and enjoy potential tax-free withdrawals in retirement.

Flexibility

As a solopreneur, you have the flexibility to adjust your solo 401(k) contributions based on your business's performance each year. If your business has a prosperous year, you can contribute more to your solo 401(k). In leaner times, you can dial back.

Loan Access

Some solo 401(k) plans allow you to borrow from your account, giving you a potential source of funds in emergencies. While this feature should be used sparingly and wisely, it can provide peace of mind knowing that you have this option.

Diversification

Having two 401(k) plans may provide more investment options, allowing you to diversify your retirement savings. Diversification can help reduce risk and potentially increase your returns over time.

Ready to unlock tax benefits and savings with a Solo 401(k)? Open an account today

A Solo 401(k) plan is a fantastic way to save and plan for your retirement, whether you work on your business full-time or not. If you are looking for a way to increase your savings potential, reduce your taxable income, or even build up capital that you can take a loan from then a Solo 401(k) could be an excellent investment option. 

With the SEPira(k) platform you can open a Solo 401(k) plan in minutes. Our self-directed Solo 401(k) plans allow you to decide where and how your money is invested, while our record-keeping features help you maintain proper records and documents for the IRS come tax season. Create your plan and start saving today.