Are after-tax contributions in an individual traditional 401k taxed twice or is there a form I fill out when I file my taxes to offset the tax obligation?

[coltrain13605]

I'm looking to open a solo traditional 401k but can only fund it using after tax dollars since I'll be working as a contractor still getting a W2 and won't be generating an income from the business. I haven't been able to find anything online saying there's a form I fill out specifically for solo 401ks nor is there a clear answer if it's double taxed, and if there are ways I can avoid that. The obvious answer is to open a solo Roth 401k, but I'm trying to open it with Schwab since all my other investments are held under them.

[dmertz]

If you are getting a W-2, you are not self employed and you are not eligible to contribute to a solo 401(k) from this income.  You would have to participate in the retirement plan, if any, offered by your employer.

[Opus 17]

@coltrain13605 

are you going to have net positive self-employment income in addition to your W-2 income? I don’t know how a solo 401(k) works if you also have a retirement plan at a W-2 job, someone else will have to answer that. But we at least need to start by clarifying whether you will have self-employment income, since your question wasn’t clear. 

[coltrain13605]

No I won't be generating self employment income per se. The work I'm in is through staffing companies for trade specific jobs (fitting, welding, shipbuilding). I contract through the staffing companies for work with businesses who need work at various locations across the world. My plan is to not accept the 401k plan offered by the staffing companies, since I won't be working for one particular staffing company for the rest of my life. 

[coltrain13605]

Not necessarily true about being self employed. I currently work with a contractor who is a self proprietor with an EIN he uses for tax purposes to itemize his business expenses for the work we do. He works for staffing companies who find him work for business in trade specific jobs such as fitting, welding, and shipbuilding around the world, and doesn't stay with one specific staffing company. Granted, he doesn't use an individual 401k for retirement or any 401k for that matter, but he is still considered self employed even though he draws a W2 every year.

[dmertz]

"he is still considered self employed even though he draws a W2 every year."

If a sole-proprietor is issuing himself a W-2, he's doing it wrong.  A sole-proprietor does not receive a W-2.  Only the non-owner employees of a sole-proprietorship receive a W-2 and those employees are not self-employed with respect tot he sole-proprietorship.  The fact that a sole-proprietor has an EIN does not change the fact that the sole-proprietor is not to issue himself a W-2.

Perhaps you misunderstand which form the business will be issuing to you.  If you are truly an independent contractor, the business should be issuing to you a Form 1099-NEC to report non-employee compensation, not issuing you a W-2.  In that case you could establish and contribute to a solo 401(k) and TurboTax would accommodate that by allowing you to claim a self-employed retirement deduction.  If you contribute to the traditional account in the solo 401(k), the self-employed retirement deduction that you receive effectively converts your after-tax money to pre-tax (tax-deferred) money.

[coltrain13605]

He’s not issuing himself a W2. He’s receiving a W2 via the staffing company for work contracted through other businesses. The worksite business calculates his time, sends it to the staffing company, then the staffing company does the payroll taxes and sends out his income each week based on the number of hours he works. I should also clarify that each worksite is a different contract agreement between the staffing company and himself that they negotiate prior to work starting. I understand what you’re saying, but this is a bit different than your typical independent contracting, for say construction, where you find the work yourself, negotiate directly with the business you’re working at, and receive untaxed income directly from the worksite business and have to pay taxes at the end of the year. Now I work directly for a company at a single location, thus not making me an independent contractor even though I’m doing the same work. So I can’t be a sole proprietor under these circumstances. 

[dmertz]

If he is receiving a W-2 from the staffing company, he is an employee of the staffing company, not self-employed.  To participate in a 401(k) with this income it would have to be by contribution to the staffing company's 401(k) plan.

[Opus 17]

@coltrain13605 

The bottom line is that you cannot open a solo 401(k) unless you are a independent contractor who reports their income on a schedule C, or you are the owner/shareholder of an S corporation.  If you are a W-2 employee, you can only use the retirement options offered by that company, and if they don’t offer a retirement option, your only other option is a private IRA with a maximum contribution of $6000 for 2022 and $6500 for 2023.