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I have an employer sponsored 401K plan where my employer matches up to a certain limit. I max out at 19.5K and my employer pays about 7.5K which works out to be 27K total.

Now I also perform independent consulting and make about 30K per year. All this income is reported in a 1099-NEC (used to be 1099-MISC) form.

Now I am planning to open a separate solo 401K to put some money from this venture. Based on my research I can put another 19.5K + 25% of my adjusted earned income (say that works out be 20% which is 6K) = 25.5K

My question is as long as the 27K + 25.5K = 52.5K total remains under the 58K total 401k contribution limit, I am good to go correct? Are there other thing for me to keep in mind when I try to max out my solo 401k.

Another question I had is do the calculations change if I go for a Roth 401k or is it the same except of course I will still pay taxes on the 25.5K.

Thanks for any responses in advance.

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  • Employee traditional and Roth contributions are capped at 19.5k across all plans (assuming you're under 50 years old)
  • Each plan's total employee (traditional, Roth, and after-tax) and employer contributions are capped at 58k

Since you maxed out your employee contribution at your employer plan, you met the 19.5k cap already and may not make any more employee traditional and Roth contributions to any plan.

Hence, for your individual 401(k), you may only make an employer contribution (traditional only) of 20% of your self-employed net income minus the employer portion of your self-employment tax, so 30k * (1 - 92.35% * 7.65%) * 20% = 5576. NB: your employer contribution is limited to 20%, not 25%, since the employer portion of your self-employment tax circularly determines your net income and hence your employer contribution limit (see the Rate Table for Self-Employed in Publication 560).

I've found this calculator to be very useful.

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    If your individual 401(k) plan allows after-tax employee contributions (which doesn't seem possible with the major brokerages' individual 401(k) offerings), you may contribute an after-tax employee contribution of 22304, which would max out your total employee+employer contribution for the individual 401(k) plan to the lesser of 58k or your net earnings from self-employment, viz. 30k * (1 - 92.35% * 7.65%) = 27880.
    – user106227
    May 23 at 19:22
  • But I'm 90% sure about the after-tax employee contribution ... Confirmation or correction welcome :)
    – user106227
    May 23 at 19:30
  • Thanks for plugging a major gap in my understanding - i.e. my contribution is pegged at 19.5K across all channels. If that is the case, then I guess I could simply live with a SEP IRA since I will max my 401K contribution at my regular day job anyway.
    – SAS2Python
    May 24 at 17:59

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