Contribute to Solo 401k and Traditional IRA

I have a couple of Solo 401k questions for you:

Thnx, AJ

QUESTION: If we have our solo 401(k), can we still be allowed to participate with another employers' 401(k) plan? If so, what are the rules?

ANSWER: Yes the rules permit contributions to multiple 401k plans. However, you cannot exceed the annual contribution limits between all plans. Therefore, for 2013 the maximum 401k plan contribution limit is $51,000 (made up of $17,500 employee contribution and 20% profit sharing contribution--also known as employer contribution). These rules apply separately to each participant/employee.

QUESTION: Even so, I'm in the process of setting up my Solo 401k plan, can I also open another IRA account from my 2012 income and roll it over later in the near future?

ANSWER: Yes the rules permit contributions to Traditional IRAs while also participating in 401k plans. However, you may not be able to take a full tax deduction  if you make over a certain dollar amount, which is discussed below.

 

Traditional IRA Contribution Phaseout Limits

Per the IRS: Reduced or no deduction.   If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status.

Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. These amounts vary depending on your filing status.   To determine if your deduction is subject to the phaseout, you must determine your modified adjusted gross income (AGI) and your filing status, as explained later under Deduction Phaseout . Once you have determined your modified AGI and your filing status, you can use Table 1-2 or Table 1-3 to determine if the phaseout applies.

Table 1-2. Effect of Modified AGI¹ on Deduction if You Are Covered by a Retirement Plan at Work

If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.

IF your filing status is ...	AND your modified adjusted gross income (modified AGI) is ...	THEN you can take ...
single or head of household	$56,000 or less	a full deduction.
	more than $56,000 but less than $66,000	a partial deduction.
	$66,000 or more	no deduction.
married filing jointly or qualifying widow(er)	$90,000 or less	a full deduction.
	more than $90,000 but less than $110,000	a partial deduction.
	$110,000 or more	no deduction.
married filing separately2	less than $10,000	a partial deduction.
	$10,000 or more	no deduction.

1 Modified AGI (adjusted gross income). See Modified adjusted gross income (AGI), later. 2 If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” filing status).