Solo 401k
Solo 401k
Hi Goglehead friends! My husband and I are independent contractors - 1099. We have already contribute max amount to our Roth IRA. I am planning to open a Solo /Roth 401(k) - we have no employees … Does anyone have experience with Solo/Roth 401K. Do we open two separate accounts (one for me and one for him) and still can contribute to each others account? And idea how to maximize this tax advantage account? Pros and Cons?
TIA!
TIA!
Re: Solo 401k
If you were separate independent contractors in separate businesses, you could open separate solo 401k's. [EDIT: this might not be true - see the following posts.]Greengo wrote: ↑Wed Jul 21, 2021 10:30 pm Hi Goglehead friends! My husband and I are independent contractors - 1099. We have already contribute max amount to our Roth IRA. I am planning to open a Solo /Roth 401(k) - we have no employees … Does anyone have experience with Solo/Roth 401K. Do we open two separate accounts (one for me and one for him) and still can contribute to each others account? And idea how to maximize this tax advantage account? Pros and Cons?
TIA!
But since you say "we have no employees," I guess you are working in the same business. Then you have choices on your business structure. See, for example, https://www.solo401k.com/blog/how-to-in ... -solo-401k.
It looks like both can participate in the business's solo 401k. I don't know about contributing to the other's account.
Last edited by eukonomos on Sat Jul 24, 2021 8:48 am, edited 1 time in total.
Re: Solo 401k
Are you independent contractors or self employed running a business?
Re: Solo 401k
Is it a single business you run together or separate businesses you run without the other’s involvement? And I know this may sound like a weird question but it matters to the IRS in determine a “controlled group”, if it’s 2 businesses, do you have minor children?
Re: Solo 401k
I think this response is misleading. If you are married, then you may only establish one solo 401(k) plan as you are a "controlled group". You cannot have two solo 401(k)s for a "controlled group" - i.e. husband and wife must use the same solo 401(k) plan. Even if they are running two unrelated businesses, the "controlled group" means they both must use the same solo 401(k) plan. Both husband and wife if they have legitimate 1099 income may contribute to this controlled group solo 401(k), and they will each have their own accounts within the solo 401(k). But there is only one solo 401(k) plan.eukonomos wrote: ↑Thu Jul 22, 2021 7:45 amIf you were separate independent contractors in separate businesses, you could open separate solo 401k's.Greengo wrote: ↑Wed Jul 21, 2021 10:30 pm Hi Goglehead friends! My husband and I are independent contractors - 1099. We have already contribute max amount to our Roth IRA. I am planning to open a Solo /Roth 401(k) - we have no employees … Does anyone have experience with Solo/Roth 401K. Do we open two separate accounts (one for me and one for him) and still can contribute to each others account? And idea how to maximize this tax advantage account? Pros and Cons?
TIA!
But since you say "we have no employees," I guess you are working in the same business. Then you have choices on your business structure. See, for example, https://www.solo401k.com/blog/how-to-in ... -solo-401k.
It looks like both can participate in the business's solo 401k. I don't know about contributing to the other's account.
Be careful choosing a solo 401(k) provider if you have a controlled group. Do a forum search, but my understanding is some of the mainstream providers may not handle solo 401(k)s for controlled groups.
Best, ICM
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Re: Solo 401k
That is not universally true if there are no minor children by the spouses.ICMoney wrote: ↑Thu Jul 22, 2021 7:12 pmI think this response is misleading. If you are married, then you may only establish one solo 401(k) plan as you are a "controlled group". You cannot have two solo 401(k)s for a "controlled group" - i.e. husband and wife must use the same solo 401(k) plan. Even if they are running two unrelated businesses, the "controlled group" means they both must use the same solo 401(k) plan. Both husband and wife if they have legitimate 1099 income may contribute to this controlled group solo 401(k), and they will each have their own accounts within the solo 401(k). But there is only one solo 401(k) plan.eukonomos wrote: ↑Thu Jul 22, 2021 7:45 amIf you were separate independent contractors in separate businesses, you could open separate solo 401k's.Greengo wrote: ↑Wed Jul 21, 2021 10:30 pm Hi Goglehead friends! My husband and I are independent contractors - 1099. We have already contribute max amount to our Roth IRA. I am planning to open a Solo /Roth 401(k) - we have no employees … Does anyone have experience with Solo/Roth 401K. Do we open two separate accounts (one for me and one for him) and still can contribute to each others account? And idea how to maximize this tax advantage account? Pros and Cons?
TIA!
But since you say "we have no employees," I guess you are working in the same business. Then you have choices on your business structure. See, for example, https://www.solo401k.com/blog/how-to-in ... -solo-401k.
It looks like both can participate in the business's solo 401k. I don't know about contributing to the other's account.
Be careful choosing a solo 401(k) provider if you have a controlled group. Do a forum search, but my understanding is some of the mainstream providers may not handle solo 401(k)s for controlled groups.
Best, ICM
https://www.consultrms.com/Resources/40 ... a-Business
https://www.employeebenefitslawgroup.co ... l-article/
https://www.law.cornell.edu/uscode/text/26/1563 (1563 e 5 & 6)
At one time both my wife and owned separate single member LLCs and we both had SE 401(k) with combined contributions in excess of 415 limit ($58K in 2020) for a number of years. We were audited and the IRS agent found we were NOT a controlled group but we have always been careful with the structure and operation and the two businesses are completely unrelated and we have no children. We also don't live in a community property state which is depending on which lawyer you ask a death blow for the spousal exception
Now if there are any minor children in the household, any share ownership, any shared officer roles, any income/wages by the non-owning spouse in in either business, or if the couple resides in a community property state then yes a controlled group exists.
Re: Solo 401k
SuzBanyan wrote: ↑Thu Jul 22, 2021 8:00 am Is it a single business you run together or separate businesses you run without the other’s involvement? And I know this may sound like a weird question but it matters to the IRS in determine a “controlled group”, if it’s 2 businesses, do you have minor children?
Thank you all for adding this important information to my response.Statistical wrote: ↑Fri Jul 23, 2021 8:19 pm That is not universally true if there are no minor children by the spouses.
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Re: Solo 401k
Thank you for everyone`s input...We are separate independent contractors in separate businesses, we have two separate incomes (I am a Real Estate agent and my husband is an independent contractor) and we have a minor child.
In this case we can have two solo 401K or only one?
In this case we can have two solo 401K or only one?
Re: Solo 401k
Only 1. I believe that “minor child” means that your businesses are part of a “controlled group”.Greengo wrote: ↑Sun Aug 01, 2021 10:26 pm Thank you for everyone`s input...We are separate independent contractors in separate businesses, we have two separate incomes (I am a Real Estate agent and my husband is an independent contractor) and we have a minor child.
In this case we can have two solo 401K or only one?
But as noted above, you will each have a separate account (or 2, if you have Botha traditional and a Roth 401k).
Re: Solo 401k
Here is some practical information from guru SpiritRider:
“ By attribution you [husband and wife] are also each deemed to own 100% of the other's business. As such these two businesses constitute a controlled group and the two of you should only adopt a single one-participant 401k plan with individual account(s) for each of you.
You can still file MFJ with a separate Schedule C/SE for each of your businesses.
Your individual contributions are based on each businesses net earnings from self-employment (earned income) = business profit - 1/2 SE tax. Your individual contributions are limited to:
Employee deferrals of up to 100% of earned income not to exceed the employee deferral limit (2020 = $19.5K) across all 401k, 403b and SIMPLE IRA plans….
Employer contributions up to 25% of compensation (earned income - employer contribution) or more easily calculated as 20% of earned income.
There is also an (employee + employer) annual addition limit. This is the lessor of the dollar limit (2020 = $57K) and 100% of compensation (earned income - employer contribution.” This is from a 2020 post: viewtopic.php?t=328284
“ By attribution you [husband and wife] are also each deemed to own 100% of the other's business. As such these two businesses constitute a controlled group and the two of you should only adopt a single one-participant 401k plan with individual account(s) for each of you.
You can still file MFJ with a separate Schedule C/SE for each of your businesses.
Your individual contributions are based on each businesses net earnings from self-employment (earned income) = business profit - 1/2 SE tax. Your individual contributions are limited to:
Employee deferrals of up to 100% of earned income not to exceed the employee deferral limit (2020 = $19.5K) across all 401k, 403b and SIMPLE IRA plans….
Employer contributions up to 25% of compensation (earned income - employer contribution) or more easily calculated as 20% of earned income.
There is also an (employee + employer) annual addition limit. This is the lessor of the dollar limit (2020 = $57K) and 100% of compensation (earned income - employer contribution.” This is from a 2020 post: viewtopic.php?t=328284
Re: Solo 401k
Supposing one is in the situation of the OP here, with separate self-employed income coming in to two spouses with minor children who are therefore a controlled or affillate service group, whichever. With any of the low-cost off-the-shelf Solo 401k providers like Fidelity, Schwab, Etrade etc, how do they create a Solo 401k that both can actually contribute to? The Solo 401k applications only ask for the EIN and name for one business, even if they then say something about affiliated/controlled businesses participating later.
I know I should probably talk to the Solo 401k provider, but I think we've probably all called the service numbers for these brokers a number of times and I strongly suspect it will be impossible to find someone who sticks their neck out for a real answer... so it's better to go into that conversation as prepared as possible.
I know I should probably talk to the Solo 401k provider, but I think we've probably all called the service numbers for these brokers a number of times and I strongly suspect it will be impossible to find someone who sticks their neck out for a real answer... so it's better to go into that conversation as prepared as possible.