Will I get a tax deduction from max contribution to a solo 401(k) and a traditional IRA?

by Tami Noll Russo, CPA | Nov 14, 2017

I have a solo 401(k) as an S corporation and a traditional IRA. If I put in the max contribution to my solo 401(k), will I also get a tax deduction for putting in the max contribution to my traditional IRA? I read somewhere this is dependent on income, so not sure where to find that info.

First, let me define maximum contribution, because I think that is where you may be getting confused.
The total contributions limit (max limit) to all defined contribution accounts for a person is set by the IRS, and they are as follows:

2017 - Age less than 50 = $54,000; Age 50 and above = $60,000

2018 - Age less than 50 = $55,000; Age 50 and above = $61,000

Now, part of that max limit is employee contributions and part of that is employer contributions. Simply put, employee-elective deferrals are 100 percent of compensation or:

2017 - Age less than 50 = $18,000; Age 50 and above = $24,000

2018 - Age less than 50 = $18,500; Age 50 and above = $24,500

Then the balance into all defined contribution plans would come from employer contributions or via the self-employment calculation. 

If you have a solo 401(k) plan, you are contributing as both the employer and the employee and can take the maximum contribution in the solo 401(k) plan if you have sufficient income. Based upon the facts given I can't imagine a scenario when you would want to contribute to both a solo 401(k) and a deductible IRA. The whole purpose of the solo 401(k) is to get the true max-defined contribution limit ($55,000 or $61,000) into the plan. I suggest you consult with a CPA who has a certified financial planner certification to get proper plan design guidance.
For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Tami Noll Russo, CPA, is a certified financial planner with Noll Financial Services in Middletown, Pa.
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
Financial FAQs

Search the most frequently asked finance and accounting questions and read the responses from PICPA members. Always consult a CPA before taking action.