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Earlier in the year I contributed to the company 401k plan. Not sure how much.

I have since gone out on my own, opened a consulting business and an individual 401k.

I'm would like to max out and am wondering how much I can contribute to the individual 401k. I realize the annual limit of $50k (I'm 47), $17k on on the employee side and 20% on the profit sharing side (single memeber LLC). However, I'm wondering if there is any way the two plans (previous employer vs. my own consulting business) would be considered two different plans subject to seperate limits.

In other words say I contributed $5k under the previous employer. Can I contribute $17k under the consultancy plus a match of up to 20% of profits? Or can I only contribute $12k plus the match?

Also any suggestions on how I figure out how much I already contributed through the previous employer? I already rolled it all into an IRA at my broker. I'd rather not call the company because, well they are pretty screwed up and I am likely to either never get an answer or potentially the wrong answer.

Best Wishes,
Darren
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I'm would like to max out and am wondering how much I can contribute to the individual 401k. I realize the annual limit of $50k (I'm 47), $17k on on the employee side and 20% on the profit sharing side (single memeber LLC). However, I'm wondering if there is any way the two plans (previous employer vs. my own consulting business) would be considered two different plans subject to seperate limits.

In other words say I contributed $5k under the previous employer. Can I contribute $17k under the consultancy plus a match of up to 20% of profits? Or can I only contribute $12k plus the match?


The salary deferral limit is per individual, so your limit there is $12,000. Other limits are by plan, so you get the full boat there.

Also any suggestions on how I figure out how much I already contributed through the previous employer?

Quickest source is the YTD figure on your last paystub. Maybe you could extrapolate from your last statement from the old plan? Remember that if you overcontribute you have a limited time in the new calendar year to retrieve the excess without tax consequence, so if you go over it's fixable.

Phil
Rule Your Retirement Home Fool
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Also any suggestions on how I figure out how much I already contributed through the previous employer?

Ultimately, it will be shown on your W-2 from your former employer. Until then, your last paycheck stub or statements from the 401k administrator might be a place to look.

--Peter

PS - As a self-employed person now, better recordkeeping is in order.
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I am in a somewhat similar but different situation. Similar in that I had contributed(approx. $5K) to a company 401K with my previous employer, also I became an independent contractor/consultant in the middle of this year. The difference is that unfortunately, I have only turn a small profit for my LLC. Question - does it make sense for me to open a 401K Solo before the year end? Can I contribute the balance of $11.5K(Individual contribution limit - the 5K above) even though my profit from the LLC is much less that that. And obviously can I still add the 20% contribution from what little profit I made as the LLC?
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First things first. How is the LLC taxed?

--Peter
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I had filled out a W9 with the company that I consulted for and I will get a 1099 issued. Hope that answer your question.
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What Peter meant was by "How is the LLC taxed" is:

1. Is your LLC a solely owned LLC? If so, and you have not made any other elections, it is taxed as a sole proprietorship.

2. If there are multiple owners, and you have not made any other elections, it is taxed as a partnership.

3-4. But you could have elected to be taxed as a corporation (C-Corp or S-Corp.)

And options 1,3, and 4 could have a solo 401(K). So we're still wondering.

Bill
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Yes. It's solely owned in my name only. I did not make any elections at setup how it will be taxed. Thanks again for your help.

S
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Yes. It's solely owned in my name only. I did not make any elections at setup how it will be taxed. Thanks again for your help.

One has to ask why you chose to form an LLC. As a single-member LLC in CA, you are subject to an annual $800 minimum tax in addition to your regular income tax. Unless you intend to hire others to work for you, your LLC doesn't provide much protection for your other assets since you are always personally liable for your own actions. The LLC entity structure is only beneficial if you intend to take on additional investors or employees.

Ira
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I am in a somewhat similar but different situation. Similar in that I had contributed(approx. $5K) to a company 401K with my previous employer, also I became an independent contractor/consultant in the middle of this year. The difference is that unfortunately, I have only turn a small profit for my LLC.

OK, now we know, based on previous questions and answers, that your LLC is a disregarded entity, and for tax purposes you are essentially the same as a sole proprietorship. You will report the LLC's activity on Schedule C of your personal tax return.

Question - does it make sense for me to open a 401K Solo before the year end?

Probably not, for this year, even if you can get it done by Monday. Generally, a solo 401(k) is for people who want to really put a lot away. Otherwise, the extra administrative and accounting work isn't worth it.

Can I contribute the balance of $11.5K (Individual contribution limit - the 5K above) even though my profit from the LLC is much less that that.

I don't think so, though I've never had that exact question come up.
You're right about the overall limit in the tax law, but I also think that any plan document would limit the amount of employee deferral to the amount of earned income from the business sponsoring the plan.

And obviously can I still add the 20% contribution from what little profit I made as the LLC?

Yes, you could also do that.

But if your income from the business is "much less than" $11,500, are you eligible to make a deductible contribution to a traditional IRA this year? You might be able to shelter most of the income from the business, and do it more simply, than with a solo 401(k).

Bill
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I pretty much agree with wradical's reply. (No great surprise there!)

However, I'm pretty sure that you can't make a solo 401k contribution in excess of your earnings from the business. 401k contributions in general have to come from earnings (typically wages, but self-employment earnings work, too). And an employee cannot contribute more than they earn. So I don't think a self-employed person could contribute more than their earnings.

--Peter
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Thanks for all the response.

- S
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