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Returning Member

Can I contribute the full $18K in elective deferrals to a solo 401K if I already made voluntary contributions to a company-sponsored SIMPLE IRA plan this year ($9K)?

I was working for a small company from Jan-Aug of this year and started freelancing in August and would like to maximize my pre-tax retirement contributions.

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dmertz
Level 15

Can I contribute the full $18K in elective deferrals to a solo 401K if I already made voluntary contributions to a company-sponsored SIMPLE IRA plan this year ($9K)?

No.  Your elective deferrals (and Roth contributions) to the solo 401(k) and the SIMPLE plan combined are not permitted to exceed $18,000 for someone under age 50.  (The maximum permitted to the SIMPLE plan by itself is $12,500).  Contributing $9,000 in elective deferrals to the SIMPLE plan for 2017 allows you to defer a maximum of $9,000 to the solo 401(k).

Note that TurboTax's Maximize function for individual 401(k) contributions is unable to accommodate elective deferrals to multiple plans.  You'll have to calculate and enter the maximum permissible elective deferral or Roth contribution to the solo 401(k) yourself.  You can then use the Maximize function for a Profit Sharing Keogh or SEP contribution to calculate the maximum permissible employer contribution to the solo 401(k).

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4 Replies
dmertz
Level 15

Can I contribute the full $18K in elective deferrals to a solo 401K if I already made voluntary contributions to a company-sponsored SIMPLE IRA plan this year ($9K)?

No.  Your elective deferrals (and Roth contributions) to the solo 401(k) and the SIMPLE plan combined are not permitted to exceed $18,000 for someone under age 50.  (The maximum permitted to the SIMPLE plan by itself is $12,500).  Contributing $9,000 in elective deferrals to the SIMPLE plan for 2017 allows you to defer a maximum of $9,000 to the solo 401(k).

Note that TurboTax's Maximize function for individual 401(k) contributions is unable to accommodate elective deferrals to multiple plans.  You'll have to calculate and enter the maximum permissible elective deferral or Roth contribution to the solo 401(k) yourself.  You can then use the Maximize function for a Profit Sharing Keogh or SEP contribution to calculate the maximum permissible employer contribution to the solo 401(k).

dmertz
Level 15

Can I contribute the full $18K in elective deferrals to a solo 401K if I already made voluntary contributions to a company-sponsored SIMPLE IRA plan this year ($9K)?

Also be aware that your combined elective deferral and employer contributions are not permitted to exceed your net earnings from self-employment.  Net earnings are net profit minus the deductible portion of self-employment taxes.  To be able to make an elective deferral of $9,000 to the solo 401(k), you'll need at least $9,684 of net profit (or a bit less if you max out the Social Security wage limit between the two jobs, reducing the deducible portion of SE taxes).
ss
Returning Member

Can I contribute the full $18K in elective deferrals to a solo 401K if I already made voluntary contributions to a company-sponsored SIMPLE IRA plan this year ($9K)?

Thanks, this is helpful. When calculating the net profit, I should subtract business expenses such as travel, office supplies, etc. But do I also subtract my home office deduction to arrive at my net earnings or is that considered separate, since it is a deduction, rather than an expense?
dmertz
Level 15

Can I contribute the full $18K in elective deferrals to a solo 401K if I already made voluntary contributions to a company-sponsored SIMPLE IRA plan this year ($9K)?

Yes, you also subtract the expense for the business use of your home.  The expense for the business use of your home goes on Schedule C line 30, so it reduces net profit the same as an expense.  It goes on line 30 instead of being included on line 28 because the amount on line 29 (derived from lines 7 and 28) is used to calculate on Form 8829 the amount that goes on line 30.  Net profit is the amount on Schedule C line 31.

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