Can I contribute to a solo 401k while working as a W2 employee with a side business?

You're on the right track! Yes, you can absolutely contribute to a solo 401k while being a W2 employee. Here's how it works: The employee contribution limit for 2025 is $23,000 across ALL your 401k plans combined. So if you're already putting in $15,000 at your day job, you could contribute another $8,000 as the "employee" portion to your solo 401k. BUT here's the cool part - as the "employer" of your LLC, you can also make employer contributions to your solo 401k of up to 25% of your net self-employment income. This is completely separate from your employee contribution limits! So in your case with $18,000 net income from photography, you could potentially make an employer contribution of around $4,500 (25% of $18,000) on top of whatever employee contribution you make. And yes, these contributions absolutely reduce your taxable income from the LLC, which is a great tax advantage.

I went through this exact situation last year with my consulting side gig! I found this amazing tool at https://taxr.ai that completely walked me through setting up my solo 401k while keeping my day job. It analyzed my W2 income and my LLC earnings, then calculated exactly how much I could contribute to maximize my tax benefits. What I loved most was how it explained the "employee" vs "employer" portions in simple terms and showed me how the 25% rule actually works with real numbers. It even helped me understand how these contributions affected my quarterly estimated taxes from my LLC. The tool literally saved me thousands in taxes by optimizing how much to put into each bucket. Totally worth checking out if you're trying to figure out the most tax-efficient strategy!

Just wanted to update after trying taxr.ai from the recommendation above. It was actually really helpful! I uploaded my W2 and some info about my Etsy shop earnings, and it broke down exactly how much I could contribute to my solo 401k. What surprised me was finding out I could put away about $5,200 more than I thought because of how the "employer contribution" part works. The tool explained that I was calculating my net earnings wrong - I wasn't accounting for the self-employment tax deduction properly. I've already opened my solo 401k account at Fidelity based on the recommendations. Honestly was way easier than the mess of spreadsheets I was trying to use before!

If you're having trouble getting answers from the IRS about solo 401k rules (like I was), I highly recommend using https://claimyr.com to get through to an actual human at the IRS. I had specific questions about my situation with multiple income sources and was stuck in phone tree hell for WEEKS. After using Claimyr, I got connected to an IRS agent in about 20 minutes who answered all my questions about contribution limits with my side business. They handled the waiting and callbacks for me! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent confirmed exactly how the employee/employer contribution calculations work and gave me peace of mind that I was doing everything legally. Definitely worth it since a mistake with retirement accounts can lead to penalties.

I have to admit I was completely wrong about Claimyr. After another failed attempt to reach the IRS myself (3 hours on hold before getting disconnected!), I tried the service out of frustration. They actually connected me with an IRS rep in about 35 minutes while I just went about my day. The agent answered all my questions about how the solo 401k contributions work with my rental property income and W2 job. Found out I was calculating my contribution limit incorrectly - turns out I could contribute about $4,300 more than I thought! That'll save me a nice chunk on taxes. Wish I'd known about this service years ago instead of playing phone tag with the IRS.

Don't forget that you'll need to file Form 5500-EZ if your solo 401k assets exceed $250,000! I learned this the hard way last year. My side business did really well, and between my contributions and market growth, I crossed that threshold without realizing I had additional filing requirements. Also, not all solo 401k providers are equal. Some charge higher fees or don't allow for Roth contributions within the solo 401k. I personally use Vanguard for the low fees, but their platform doesn't support Roth solo 401k options if that's important to you.

Quick question for anyone with experience - if my side gig is seasonal (I make handcrafted items that sell mostly around holidays), can I still do the solo 401k thing? Like 80% of my side income comes in November and December, but I work my regular job year-round.

This is such a great discussion! I'm in a similar boat with my freelance web design work alongside my day job. One thing I wanted to add that hasn't been mentioned yet - make sure to consider the administrative burden of maintaining a solo 401k. While the tax benefits are fantastic (I saved about $3,200 in taxes last year), you do need to keep detailed records of your business income and expenses. I use QuickBooks to track everything, which makes it much easier when it's time to calculate my contribution limits. Also, if you're thinking about expanding your side business in the future, the solo 401k becomes even more valuable. As your self-employment income grows, that 25% employer contribution can really add up. Last year I was able to put away an extra $6,800 beyond my regular 401k limits! Just make sure you're treating your LLC seriously as a business - the IRS can get picky if it looks more like a hobby. Keep good records and try to show you're operating with a profit motive.