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Solo 401(k) Contribution Limit with Another Job

A reader writes in, asking:

“For the first 9 months of 2016, I have been considered a self-employed 1099 contractor at a hospital. As of October 1st, I will be a W-2 employee, but I will be doing the same work at the same hospital.

If I have sufficient earnings as a 1099 contractor for that 9-month period in 2016, will I be able to contribute a full $53,000 to my Solo 401k with that contribution being funded as ’employer’ contributions while also contributing up to $18,000 to my 401k as an employee for the period of October 1, 2016 – December 31, 2016?”

Short answer: Yes.

[Quick note: With what follows, I am assuming that the reader is familiar with the basics of solo 401(k) contribution limits. If you are not, I’d suggest reading up on them before proceeding.]

The employee salary deferral limit for 401(k) plans (i.e., $18,000 for 2016) is a per-person limit. That is, any deferrals that are made to the plan at your job as an employee will be counted against the $18,000 limit for deferrals (i.e., “employee” contributions) to the solo 401(k) — and vice versa.

The $53,000 annual limit works differently though. This limit comes from IRC 415(c). The key point when reading that Code section is to understand that these are the rules for a given plan, rather than for a given person. That is, the plan wouldn’t be a qualified retirement plan if it let a participant contribute more than $53,000, but there’s no rule saying that a given person isn’t allowed to make more than $53,000 of total contributions if they are a participant in multiple plans.

This article from provides a very clear example:

“Greg, 46, is employed by an employer with a 401(k) plan and he also works as an independent contractor for an unrelated business. Greg sets up a solo 401(k) plan for his independent contracting business. Greg contributes the maximum amount to his employer’s 401(k) plan for 2015, $18,000. Greg would also like to contribute the maximum amount to his solo 401(k) plan. He is not able to make further elective deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $18,000. He has enough earned income from his business to contribute the overall maximum for the year, $53,000. Greg can make a nonelective contribution of $53,000 to his solo 401(k) plan. This limit is not reduced by the elective deferrals under his employer’s plan because the limit on annual additions applies to each plan separately.”

Caution: Shared Ownership

While the $53,000 limit is a per-plan limit, it’s important to understand that, in some cases, multiple retirement plans will be aggregated (i.e., considered to be one plan). IRC 415(g) and 415(h) provide the relevant rules.

Specifically, multiple businesses will be aggregated as part of a “brother-sister controlled group” if five or fewer individuals (including people, estates, and trusts) own more than 50% of the stock of each business (measured in terms of voting power or value). Alternatively, two businesses will be aggregated as part of a “parent-subsidiary controlled group” if one business owns more than 50% of the other business (again measured in terms of voting power or value).

For example, if you are the sole owner of two single-member LLCs, those two LLCs will be aggregated for these purposes (and you will not be able to exceed the $53,000 total contribution limit), even if the two LLCs operate in completely different industries.

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