How to Coordinate a Day‑Job 401k and a Solo 401k

Earning both W-2 and 1099 income opens the door to extra retirement contributions — but it also adds complexity. If you already have a 401k through your employer and want to set up a Solo 401k for your side business, the IRS has strict coordination rules you must follow.

It’s easy to make honest mistakes that lead to overfunding or tax penalties. This guide breaks down the key rules so you can use both plans the right way, without guesswork.

Know the 2025 Limits When You Have Two 401ks

Having both W-2 and 1099 income lets you use two 401k plans — your employer’s and a Solo 401k. But to avoid overcontributing, you need to understand how the IRS limits apply across both.

One Deferral Limit, Two Employers

In 2025, the employee deferral limit across all 401k, 403b, and TSP plans is $23,500. If you’ll be 50 or older by December 31, you can contribute an extra $7,500, bringing the total deferral limit to $31,000. This combined limit applies to you personally, not per plan. So if you defer money into your day-job 401k, any deferral to your Solo 401k must stay within the same total.

You’re allowed to split the deferral amount between both plans in any way, as long as:

📝 Note: If you accidentally exceed the limit, request a refund of the excess and any earnings by April 15 of the following year. This helps avoid double taxation on the extra amount.

Profit Sharing Is Calculated Separately

While your deferral is shared across both plans, employer contributions, including Solo 401k profit-sharing, are capped separately under IRC Section 415(c).

Each employer has its own $70,000 limit in 2025 for total contributions. This includes:

The age 50+ catch-up is not included in the $70,000 cap, so the total can reach $77,500 if you qualify.

For your Solo 401k:

📌 IRS Publication 560 includes worksheets to help calculate the exact employer contribution based on your business type and earnings.

📝 Reminder: S-corp shareholder distributions do not count as compensation for 401k purposes. Only W-2 wages do.

Special Catch-Up for Ages 60–63 in 2025

Starting in 2025, there’s a larger catch-up limit for individuals turning age 60, 61, 62, or 63 that year. This “super catch-up” is $11,250, available in eligible 401k, 403b, and TSP plans.

If you qualify, your total deferral limit for 2025 could reach: $23,500 + $11,250 = $34,750

This special catch-up is separate from the $70,000 employer cap and can be used alongside regular catch-ups. Also, if you contribute to a governmental 457b, its limits are handled separately and do not count toward your 401k caps.

Calculate Your Solo 401k Contribution Step by Step

If you’re self-employed on the side, a Solo 401k allows your business to make employer contributions, even if you’re already contributing to a 401k at your W-2 job. The amount you can add depends on how your business is structured and how much net income it earns.

Each plan you participate in has its own IRC Section 415(c) limit for employer and employee contributions combined. You must calculate your plan compensation correctly using IRS worksheets to avoid overfunding your Solo 401k.

Self-Employed? Use the 20% Rule for Sole Proprietors

If you’re a sole proprietor or single-member LLC, your Solo 401k employer contribution is based on your net self-employment income. However, the IRS requires a few adjustments before applying the contribution rate.

Start with your Schedule C net profit. Then multiply that by 92.35% to reflect the portion subject to self-employment tax. Use Schedule SE to compute your self-employment tax, and subtract half of that amount. This gives you your earned income for Solo 401k purposes.

From there, apply the adjusted rate. Although plans generally allow employer contributions up to 25%, IRS calculations for sole proprietors reduce this to an effective rate of 20% of earned income.

📝 Reminder: Use the worksheet in IRS Publication 560 to get this number right. It walks through each step and includes a reference table with correct formulas.

Running an S-Corp? Use W-2 Wages Only

For S-corporation owners, your Solo 401k employer contribution is calculated based on your W-2 salary, not your shareholder distributions.

You can contribute up to 25% of your W-2 wages, as long as the business treats you as a common-law employee and issues you a salary for services performed. IRS guidance is clear that officer-employees must receive W-2 wages for plan purposes.

Setting a reasonable salary is important. A low wage reduces your contribution space, while a high salary increases the potential employer amount, but also raises payroll taxes. There’s no one-size-fits-all answer, but your Solo 401k contribution depends entirely on how much you pay yourself through payroll, not distributions.

✏️ Hypothetical Example: Maxing Out Both Plans

Let’s say you’re under age 50 and have both W-2 and self-employment income:

Step 1: Calculate self-employed Solo 401k employer contribution.

Start with $40,000 in net profit.

This is the amount your side business can contribute as the employer.

Step 2: Coordinate deferrals.

Since you already contributed $18,000 at your day job, you have $5,500 of elective deferral room left (if under the $23,500 limit). You can add this to your Solo 401k, subject to plan rules.

Your Solo 401k’s annual additions include both:

This combined amount must stay within the Solo 401k’s $70,000 cap for 2025. Your day-job 401k has its own cap, so they don’t interfere with each other.

📝 Note: Catch-up contributions for those age 50+ are not counted toward the $70,000 employer limit. They are counted separately.

Stay Compliant and Avoid Penalties When Using Two 401ks

When you contribute to both a day-job 401k and a Solo 401k, you (not your employer) are responsible for tracking the combined totals. The IRS does not coordinate this for you, and plan administrators typically cannot see contributions made to other plans.

There are two key areas where mistakes often happen:

Keeping accurate records and staying aware of key deadlines can help you avoid tax problems and IRS notices.

Track Your Deferrals in Real Time

The IRS treats your salary deferrals, both pre-tax and Roth, as a single annual limit across all plans. This means your workplace 401k and Solo 401k contributions must be added together as the year progresses.

Set up a simple log or spreadsheet to track your year-to-date deferrals across all plans. If you’re contributing to a Solo 401k, check your totals before each deposit to avoid overfunding.

If you change jobs or open a new Solo 401k mid-year, inform your new plan or payroll provider of your previous deferrals. The IRS encourages proactive coordination between you and plan administrators so no one accidentally exceeds the limit.

📝 Tip: Expecting a large year-end bonus? Consider adjusting your deferral percentage temporarily to stay under the cap. This can help prevent an excess deferral that you’ll need to unwind later.

Fix Excess Deferrals

If your combined elective deferrals go over the IRS limit, you must act quickly. Request a corrective distribution from one of the plans by April 15 of the following year. This includes the excess amount and any earnings on it.

If corrected in time, the excess will only be taxed once in the year it was contributed. If you miss the deadline, it could be taxed again when withdrawn, resulting in double taxation.

This type of mistake does not typically require Form 5330, which is used for other types of plan errors (like excess employer contributions or failed nondiscrimination tests). But if you’re required to file multiple IRS forms annually, Form 5330 may still be subject to mandatory e-filing rules. Always check the instructions for timing and code-specific requirements.

File Form 5500-EZ On Time If Required

Solo 401k owners must also comply with IRS filing rules. If your plan’s total assets (including rollovers) exceed $250,000 at year-end, you must file Form 5500-EZ by July 31 (for calendar-year plans). This applies to all one-participant plans combined under the same employer.

Even if your assets are under the threshold, a final-year 5500-EZ is always required when closing the plan.

You can file the form electronically through EFAST2, especially if you submit 10 or more returns of any kind during the year. For many plan owners, e-filing is now mandatory.

Need more time? You can extend the deadline using Form 5558, or possibly rely on your business’s tax return extension, but only if certain IRS conditions are met. Always keep extension paperwork in your plan’s file.

Keep Your Plan Documents Updated

If your Solo 401k provider notifies you about required amendments (such as those tied to SECURE 2.0), complete and sign them by the IRS deadline. These signed amendments should be stored with your plan records, and they don’t affect your 5500-EZ deadline.

📝 Reminder: Plan updates must be timely and documented, even if you’re the only participant. The IRS expects all one-participant plans to follow the same amendment cycles as larger plans.

Final Thoughts

Using two 401k plans in the same year isn’t complicated once you understand where the limits overlap and where they don’t. Treat each plan as part of a bigger picture, and take time throughout the year to update your records, double-check contribution totals, and confirm that your Solo 401k meets any filing or amendment deadlines.

If you’re unsure about your numbers or nearing the cap, reviewing IRS worksheets or consulting a tax professional may help prevent costly errors. With clear tracking and good timing, it’s possible to use both plans to their full advantage without overstepping the rules.

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