Can you participate in two 401k plans at the same time?

Question

I have a full time job where I participate in a 401K and contribute the maximum amount. I also work part time in my wife's sole proprietorship, but dont draw a salary. Can I sign up in the retirement plan in her company, get a salary, and contribute there too. If so, what are the limits, and is the financial advantage of this tax deferral offset by the higher social security tax that has to be paid on my income? Her SS tax is maxed out, so that her extra profit because of my zero salary does not create an extra SS contribution.

Answer 1

Yes, you can do that, and you have identified the pitfalls.

Answer 2

Yes, you still can...the 15,500 and 45,500 limit is applicable for each individual and is not a plan limit. And while the benefit IS minimized by the tax it's not eliminated. Assuming as you said that 100% of the income would have otherwise gone to your wife and she's exceeded that base then it's still possible to benefit here. Everyone is forgetting that you are paying Federal Income Tax on your wife's income.

Remember, that while you may be subject to 15% tax, any amount deferred or contributed into your wife's plan by your wife or you reduces the federal income tax by 30% (you say you contribute the max and she made over 100k so I assume 30% tax bracket). So you're still 18% to the good! And, if your wife's plan has profit sharing and matching feature then the benefit can be even larger. If it doesn't? ADD IT!!! Key though is to actually do enough work to qualify for an income of that level. IRS frowns on it otherwise.

bottom line it's a tax savings here...your tax rate versus the SS tax rate. So long as your tax rate is higher then it's better to maximize your contributions.

Talk to your accountant or a third party 401k administrator. If you give them your specifics (income, wife's income levels, tax rates etc) they'll be able to tell you the benefit.

Answer 3

From your question, your wife's company has a 401k plan. There is a limit of $15,000 for 2006 to all 401k plans for an individual under 50. At age 50 or over, the limit is $20,000.

If you are contributing this maximum at your present job, then there is nothing left that you can contribute to your wife's plan from your salary paid by your wife's business.

Your 401k contributions at your full-time job are worth more to you than having some of your 401k contributions come from the proposed salary, since your SS tax you have to pay, and the employer's share of SS your wife pays, reduces the investable contribution by about 15% from the amount your wife pays (your salary plus employer SS, all of which she will deduct).

Therefore your percent of joint tax savings if you defer all of your salary would be your joint tax bracket less about 15%.

If because of your salary at your full-time job you cannot contribute $15,000 then your plan does reduce current taxes even when the extra SS is considered.

Answer 4

I artwork protection at a central authority development for a employer that has a freelance with the gov't. i'm going interior the path of the comparable element. My base pay is $XX.XX and that i'm given $3.seventy 5/hour for "wellbeing and Welfare" ($3.seventy 5 x 40 hours x 4 week = $six hundred). This week, i grow to be mentioned that I even have 2 strategies; (A) take the companies coverage(which would be larger than what I already pay) and the relax stability($six hundred - value of employer's coverage) will go right into a 401k or (B) no longer take the employer's coverage and all the "wellbeing and Welfare" ($3.seventy 5 x 40 hours x fifty two weeks = $7800) will go right this moment right into a 401k. So, I the two pay greater in coverage a month and lose probably $3 hundred/month(i'm guessing) or I lose $six hundred/month and pay my own coverage out of my base pay. i do no longer understand the "wellbeing and Welfare" part of it. To me, my wellbeing and welfare is composed greater effective than merely coverage, i could think of it may incorporate nutrition, clothing, preserve, and so on. Neither of the strategies, does my company make contributions to my 401k the two. we've already lost a million preserve this previous week through those variations, with others thinking of leaving. If there is not any longer adequate protection guards available, the development is compelled to close down. How does one merely make up for dropping $six hundred a month, $7800 over the path of an entire 12 months for merely no longer desirous to pay greater for coverage rates with worse coverage!