Expert: Allen - 11/30/2009

Question
My employer has a 401k plan and I participate to the maximum each year. I have started a side business....just me, no employees. I think I am eligible to have an individual 401k for this side busness. Is this true and what are the limits for contributions to the new 401k. Must I take into account the contributions I have already made to my employers plan? Thanks

Answer
If you have no ownership in the company where you work, you can establish a plan for your side business. The plan can have a profit sharing feature and/or a salary deferral (or 401k) feature.

You can make profit sharing contributions to this plan. The maximum is approximately 19% of your Schedule C income. However, you can not double up on the 401k contribution. For 2009 you are permitted to contribute a total of $16,500 to all 401k plans that you participate in (not to each one). You can also contribute an additional $5,500 for a total of $22,000 if you were born before 1960.