Did You Know You Can Have Multiple 401k Plans?

Matt Blocki with EWA, something that often surprises clients when we tell them they can actually have multiple 401Ks. So you may have a 401K through your day job and then maybe you have a business, either a side business or maybe you’re a business owner that has multiple businesses.

Surprisingly, you are allowed to have multiple 401Ks under one name. This video is going to describe how to make sure that you maximize those and also certain restrictions that do come into play per individual. So each 401K has what’s called a 402G limit and a 415C limit.

So the 402G limit is what we refer to as an elective deferral. So starting in 2022, this is either a Roth or a pre -tax contribution. The total that you can put in is 20 ,500 and that is per the individual’s tax IDs. This is something that shows up on your W2.

How much did you put in the 402G limit? You cannot exceed 20 ,500. If you had two 401Ks, 10 401Ks, it doesn’t matter. You cannot exceed that number. So let’s just say hypothetically that job one, you’ve decided to max that out.

That means job two, if you have a 401K, you need to make sure that $0 is going into the Roth or pre -tax option. The 415C limit, the total that can go in starting in also starting in 2022, the total that can go into each 401K is $61 ,000. So for job one, since you’ve already done the 20 ,500, you could put in an additional 40 ,500 here through a after -tax contribution.

Under current law, it could be converted to a Roth, also known as the Mega -Back to a Roth. You could have a match set up. Maybe it’s 100% of 3% or a 50% of the first 6%. That’s company -specific how that’s structured. And then the third thing is if the company allows or if you’re running your own companies, you could set up a profit -sharing contribution that would need to be calculated if you have multiple employees.

How much goes into each to make sure the plan passes the test is not what’s called top heavy. Regardless, between these three sources in job one, you can put in the 20 ,500 plus the 40 ,500 into one of those three sources. Again, if the 401K design allows you to do so.

Job two, we can do the same thing, however, because $0 has gone into the 402G limit and we cannot put any more money in the 402G limit again because that’s an individual limit that we’ve already fulfilled in job one. So job two, we can put the entire $61 ,000 inside one of these three sources.

Now, just as an example, the profit share is limited to 25%. So job two, you would have to have a pretty substantial income to reach that goal. So let’s say job two has $100 ,000 of income. 25% of that would be $25 ,000. You couldn’t do 61.

You cannot exceed 61. So let’s say job two had a $300 ,000 income to it. 25% of that would be $75 ,000 with IRS that says, okay, that’s great, but we’re going to cap you at 61. You can’t go above that 61.

Another example would be in the after tax contribution. This is a dollar for dollar contribution. So you would need a net $61 ,000. So for example, you’d probably need about $85 ,000 to $90 ,000 of a gross. After tax are paid, net that $61 ,000.

You could put that entire $61 ,000 to the after tax. Again, under current tax law, that could be converted to a Roth the next day. And then for the growth and the distributions after five years and then also 59 .5 had passed all that growth and contributions that you’ve made are completely tax free.

So again, yes, you can have a 401k. You have to be careful of the two different limits. You can have as many 401ks as you do jobs that you have that have the 401k as an option. Just need to be careful where the money is being contributed to and coordinating the 402g limits and then also following the IRS rules on the overall 415c limit.

We welcome any questions that you have.