Solo 401k when transitioning from self-employed to W2

[william-bert]

I'm currently self-employed, and I have an individual 401k. In a few weeks, I will start receiving all income as a W2 employee, no more 1099. I'm wondering about contributions to my individual 401k -- can I contribute the full annual limit if I do so before August 1? Or is the max I can contribute based on how much of the year I'm earning 1099 income?

[SweetieJean]

This is a couple of years old, but may be helpful:

Solved: solo 401k contribution for 1099 (but when also hav... (intuit.com)

@dmertz  Can you chime in?

[dmertz · Accepted solution]

Just be cause you start working for an employer that reports your earnings on a W-2 does not make you no longer self-employed.  The amount that you can contribute to the individual 401(k) for 2022 is dependent on the net profit for the entire year reported on your 2022 Schedule C.

The deadline for making the election to make an employee deferral or Roth contribution to the individual 401(k)  is December 31, 2022 and that portion of your contribution should be made as soon as practical after that date, if not made before.  You have until the due date of your 2022 tax return to make the employer contribution to the individual 401(k), if you make any.

The only thing about the new employer that might affect your contributions to the individual 401(k) is that your elective deferrals and Roth contributions to both your individual 401(k) and any plan provided by the new employer combined is not permitted to exceed $20,500 (plus a catch-up of $6,500 if age 50 or over in 2022).

[william-bert]

Thank you for the detailed reply.

"your elective deferrals and Roth contributions to both your individual 401(k) and any plan provided by the new employer combined is not permitted to exceed $20,500" -- I think I follow this, and if I'm understanding right, then the *employer* contributions I make to my solo 401k would not count towards this limit, correct?

[dmertz]

Correct.  The $20,500 limit applies to employee elective deferrals and Roth contributions, not to employer contributions.  There are other, per-plan limits on employer contributions.  TurboTax will calculate the maximum employer contribution you can make to the solo 401(k).