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Can I have an IRA and a Solo 401(k) Plan at the Same Time?

The 401(k) plan qualified plan rules do not contain an exclusive plan rule. Hence, a plan participant is able to participate in an employer 401(k) Plan or Solo 401K Plan as well as make annual IRA contributions.

Under the 2013 new Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $17,500. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $51,000, an increase of $1,000 from 2012.

For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $23,000. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $56,500, an increase of $1,000 from 2012.

In the case of an IRA, under the 2013 contribution rules, an individual with earned income can defer up to $5500 or $6500 if over the age of 50. Nevertheless, if the plan participant has maxed out his or her employee deferral contributions for the year, an IRA contribution can still be made but it would bot be tax-deductible. In other words, it would be an after-tax contribution. At that point, the individual would likely convert the after-tax contribution to a Roth IRA and gain the benefit of tax-free appreciation.

To learn more about the IRA or Solo 401(k) Plan contribution rules, please contact a retirement expert at 800-472-0646.

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Posted in IRA, Solo 401(k)