I was wondering if anyone could tell me if I qualify to set up a personal 401-k Plan? I am currently employed and make a full salary. I have maxed out my individual contribution in my personal IRA account at $5500 this year.

I also receive income as an independent contractor both from my current employer with a 1099-Misc for work that I do above and beyond my regular employment contract and also as compensation for new clients that I bring into the firm. I also get paid directly from some clients. I have my own private business account and personal EIN number for the contractor work.

My employer doesn't offer any 401-K or pension plan and I feel I'm behind in the retirement game. I would really like to start using some of the money I'm earning as an independent contractor (no employees) to save in a personal 401-K. Am I eligible? I can't get a straight answer from anyone on this. I believe that I am.

Thank you in advance.

  • It is my understanding that if you are a W2 employee with a company other than your own, you are not eligible for a self 401k. You should probably look at using a taxable brokerage account instead for additional retirement savings. – EkoostikMartin Dec 10 '14 at 19:22
  • It's my understanding that he's both a W2 employee and an independent contractor. Being the former doesn't prevent him from being the latter. – David Rice Dec 10 '14 at 20:41
  • David is correct. I am both a W2 employee and an independent contractor. I understand that the W2 income cannot be used for a personal 401K but I believe that I can use the independent contractor money? J – Derek Dec 10 '14 at 21:33
  • @Derek that's correct – Andrew Walters Dec 11 '14 at 13:26

I'm not a tax lawyer, but from what I can tell it looks like you'd be eligible to use your contractor income to fund a Solo 401(k). http://www.irafinancialgroup.com/whatissolo401k.php "To access these benefits an investor must meet two eligibility requirements:

  1. The presence of self employment activity.

  2. The absence of full-time employees."

And from the IRS itself (http://www.irs.gov/pub/irs-tege/forum08_401k.pdf)

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