Beating The $52k Solo K Limit For Investors With Multiple Businesses

[Bryan Hancock]

I am writing about this on BP because I just found out about it and there are bound to be some tax wizards on here that know about about the game theory needed to navigate our ridiculous tax code.  I stumbled upon this article in my online research:

Beating the $51K Limit – Friday Q&A Series

Note that the upper threshold has increased to $52k since this article was written.  

It seems like if you have multiple businesses or streams of income and can declare the right portions as earned income you can exceed the $52k threshold that would normally be imposed by I.R.C Section 415(c) which is linked here for convenience:

I.R.C Section 415(c)

Once you "use up" the $17.5k for a 401(k) you seem to be able to shelter up to 18% of the profit afterwards.  I am not really following his example so I was hoping someone could explain it to me in English ;-)

There are multiple items to navigate with all of this aside from this abstruse piece of the regulations, but clarity on this piece in isolation would be helpful if one of our tax wizards can help with a common sense example.  If you're not a tax wizard please feel free to comment as well since this should be quite interesting for some of the high income earners on BP looking to keep more of their hard-earned money.  

[Loren Whitney]

@Bryan Hancock

The $17.5k deferral is per person, but the company max is for the company.

@Ellis San Jose is on the right track.

You couldn't contribute to the 401K at (your business #1) plus (your business #2) beyond the $52K total because you have to treat all companies you control as one. What that really means is even though you have multiple businesses, 'you' are the employer now matter how many hats you wear.

When would this work?

If you hold a second job as an employee, the company (say Disney) could technically contribute their 'employer' portion to the 401k. 

This doesn't apply to hardly anyone. 

@Pat L. is on to good logic by looking at other plan options beyond 401k. I don't deal with them personally but I believe Defined Benefit [Section 415(b)1(A)] contribution limits are $210,000 in 2014.