If you have a full-time job, but have a side business that earns self-employment income, then you may adopt a solo 401K Plan for that side business even though you currently have a full-time job.
To be eligible to benefit from the Solo 401(k) plan, an individual must meet just two eligibility requirements:
(i) The presence of self-employment activity.
(ii) The absence of full-time employees.
Thus, as long as the individual has some sort of self-employment business activity that generates self-employment income or has the potential to earn income and that business has no employees other than the owner(s), a solo 401K plan can be adopted by that business. The business can take any of the following forms – sole proprietorship, LLC, corporation, or partnership.
Ok – so now that we have established that an individual who has a full time job can still adopt a solo 401K plan for that business, can that individual max out his or her 401(k) Plan contributions twice. The answer to this question is no. There is no exclusive plan rule when it comes to establishing a qualified retirement plan, however, the IRS does not allow one to make annual 401(k) plan contributions in excess of the annual limitation.
For 2012, the total contribution limit for a Solo 401k is $50,000 or $55,500 if age 50 or older. The total allowable contribution limits are combined to get the maximum solo 401k Plan contribution limit. Thus, whether the individual has one or more 401(k) qualified retirement plans, the IRS does not allow one to make annual contributions in excess of the annual maximum contribution limitation ($50,000 for 2012). Hence, for example, if an individual made a $17,000 employee deferral contribution to their employer qualified plan, the individual would no longer be able to make an employee deferral contribution to his or her solo 401K Plan. That individual can, however, make profit sharing contributions to the Solo 401(k) Plan up to a combined maximum of $50,000, including the $17,000 that was made as an employee deferral contribution to the Solo 401(k) Plan. Of course, that individual would need to have earned sufficient income through the self-employment activity in order to be able to make such contributions. Also, an individual is not required to make annual contributions to the solo 401K Plan. Accordingly, the individual can use the Solo 401K Plan has a vehicle to make investments or as a tool for borrowing up to $50,000 tax-free.