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Moonlighting Employee with Solo(k); Active Participant for IRA Purposes?


rocknrolls2

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I am representing a client who is being offered a job with a new company, except that the company does not offer a 401(k) plan. She is likely to accept the offer but thinking of funding a traditional IRA as an option to replace the 401(k) her new employer will not provide. She also has a side business which she hopes to continue to maintain and is considering a solo(k) to help her fund her retirement through that business. Would the maintenance of the solo(k) result in her being treated as an active participant in a retirement plan for IRA deduction purposes? I did some preliminary research on this and nothing I have seen specifically addresses this. Since active participation is reported on the W-2 issued to an employee, I would tend to think that the answer should be No but wanted another set of eyes to back me up. Thank you.

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The reason you have not seen anything specifically addressing this is because a one-participant 401k is still first and foremost a 401k plan. There is nothing to address.

Contributions by or on behalf of a one-participant 401k participant make them an active participant for the tax year of those contributions. As do SEP IRA contributions for the calendar year of those contributions.

Self-employment and the lack of W-2 reporting is irrelevant.

 

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Exactly. Partners in a partnership don't get a W-2, but if they are in partnership retirement plan they are not eligible for deductible IRA either (assuming over income thresholds).

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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I will echo the two above me and add.

If she takes a deduction for the 401(k) Plan on her tax return then she's covered by a pension plan and would use those rules for determining deductible IRA contributions.

Previously Self-Employed individuals deducted "SEP, SIMPLE and Qualified Plan" Contributions on Page 1 of the 1040, for 2018 going forward I believe it is done on a Schedule 1, line 28, attachment to 1040.

 

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She will be covered by a plan for the IRA deduction rules. The only income she can fund with is the side business income if she is an employee of the business that does not have a plan, because only that business could establish a plan for that income.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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