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Each separate retirement plan, such as one at a primary employer and another for a side business, has its own individual contribution limit of $72,000.
Using a Solo 401k with a mega backdoor Roth feature, an individual can contribute their entire net income up to $72,000 into the plan.
A Form 5500-EZ must be filed for any Solo 401k plan that has a total asset value of $250,000 or more on December 31st of any plan year.
The penalty for failing to file Form 5500-EZ is $250 per day, with a maximum penalty of $150,000.
Solo 401k plans and SEP IRAs do not have the enhanced ERISA creditor protection that employer 401k plans have.
The primary retirement plan options for solo or small business owners are a SEP IRA or a Solo 401k.
The total contribution limit for a mega backdoor Roth 401k plan is $72,000.
The employee deferral limit, currently $24,500, is the only contribution limit that aggregates across all of an individual's retirement plans.
To reach the maximum contribution of $72,000 in a SEP IRA, an individual must have a net income of $360,000, as contributions are limited to 20% of net income.
An individual can reach the $72,000 maximum contribution in a Solo 401k with a lower income of approximately $235,000 to $240,000, compared to a SEP IRA.
A Solo 401k plan becomes disqualified and can no longer be used once a non-owner W-2 employee becomes eligible to participate.
A Solo 401k plan can include multiple business partners and their spouses, as long as there are no non-owner employees.