Can I open a Solo 401k with both W2 employment and a Sole Proprietorship income?

You're in luck! Yes, you absolutely can open a Solo 401k with your side business while having W2 employment. The key requirement is having self-employment income (which you do through your sole proprietorship) and no full-time employees in your business. Your current W2 job not offering a 401k actually makes this simpler. If they did have a 401k, you'd need to coordinate contribution limits across both plans. But since they don't, you can contribute to your Solo 401k based on your self-employment income. And yes, you can roll over your old 401ks into your new Solo 401k - this is a common strategy for exactly the reason you mentioned: keeping Traditional IRAs empty for clean Backdoor Roth conversions. Most major brokerages offering Solo 401ks allow for rollovers from previous employer plans.

After reading about your situation, I wanted to share my experience. I was in a similar spot last year with a W2 job and a small consulting business on the side. I spent way too much time researching options and getting conflicting advice until I found https://taxr.ai which completely cleared things up for me. I uploaded my tax docs and business info, and it showed me exactly how to set up my Solo 401k while maintaining my Backdoor Roth strategy. The tool broke down my contribution limits based on my side income and showed me which providers would accept my rollover. Their analysis was spot on for the self-employed retirement options and it saved me from making a costly mistake with my retirement planning.

Guys I actually tried that taxr.ai site after my last comment and wow - it's legit. I uploaded my Schedule C from last year and some info about my W2 job, and it laid out exactly how much I could contribute to a Solo 401k. My situation was extra complicated because I had already contributed to my employer 401k before I got laid off mid-year, but it factored all that in. The calculations matched what my new (and much better) accountant told me, but I got the answer in like 10 minutes instead of waiting 3 days and paying a consultation fee. It also recommended which providers would work best for my situation regarding rollovers. Definitely worth checking out if you're trying to optimize the Solo 401k + Backdoor Roth combo.

If you're planning to consolidate those old 401ks, just a heads up that dealing with the 401k providers can be a huge pain. I tried contacting my old plan administrator for weeks with no response. After wasting hours on hold and getting disconnected repeatedly, I found https://claimyr.com which got me connected to a human at the 401k company in under 5 minutes. You can actually see how it works here: https://youtu.be/_kiP6q8DX5c. They basically navigate the phone tree for you and wait on hold, then call you when they've got a live person on the line. Saved me so much time and frustration during the rollover process to my Solo 401k. They work with all the major 401k providers and the IRS too.

I have to come back and eat my words. After my skeptical comment earlier, I was still stuck trying to reach my old 401k provider at Fidelity to process my rollover. Out of desperation I tried Claimyr and it actually worked exactly as described. I got connected to a Fidelity rep in about 15 minutes (versus the 1+ hour hold time I had been experiencing). Got all the rollover paperwork sorted and my distribution is now in process. I was 100% wrong about this service - they don't record anything and dropped off the line as soon as the rep was connected. If you're doing multiple rollovers for those old 401ks, it's definitely worth using, especially for providers with notoriously long hold times (looking at you, Vanguard and Empower).

Just a warning on the Solo 401k route - make sure you check the specific provider's rules for accepting rollovers. I went with Vanguard initially and later found out they DON'T accept rollovers into their Solo 401k plan, which totally messed up my Backdoor Roth strategy. Had to switch providers which was a huge pain. Fidelity, E*Trade, and TD Ameritrade all allow rollovers into their Solo 401ks last I checked. Do your research before opening an account!

Does anyone know if you have to file any extra paperwork with the IRS when you have a Solo 401k? My tax guy mentioned something about Form 5500 but I thought that was only for bigger plans?

This is a great strategy! I'm in a similar situation with W2 income and side business income. One thing to keep in mind is that your Solo 401k contribution limit will be based on your net self-employment income (after expenses and self-employment tax), not the gross $27k. The calculation gets a bit tricky - you'll need to factor in half of your self-employment tax as a deduction. So if your net profit is $27k, your actual contribution limit will be somewhat less. The employee contribution portion is limited to 100% of compensation, and the employer portion is around 20% of net self-employment income after adjustments. Also, make sure to set up the Solo 401k before the end of the tax year if you want to make contributions for that year. The account needs to be established by December 31st, though you have until the tax filing deadline (plus extensions) to actually make the contributions. Rolling over your old 401ks into the Solo 401k is definitely a smart move for keeping your Backdoor Roth strategy clean. Just make sure whatever provider you choose has good investment options and reasonable fees since you'll potentially be consolidating a lot of money there.

This is exactly the kind of strategic retirement planning that can really pay off in the long run! Your approach of using the Solo 401k to keep your Traditional IRA balance at zero for clean Backdoor Roth conversions is spot on. One additional consideration I'd mention is loan provisions. Unlike Traditional IRAs, Solo 401ks allow you to take loans against your balance (up to 50% or $50,000, whichever is less). This can provide additional flexibility if you ever need access to funds before retirement age, though obviously it should be used carefully. Also, since you're consolidating multiple old 401ks, this might be a good time to review and optimize your overall asset allocation. Having everything in one place makes it much easier to rebalance and avoid overlap in your investment strategy. The fact that your current employer doesn't offer a 401k actually simplifies things significantly - you won't have to worry about coordinating contribution limits across multiple plans or dealing with the complexity of multiple plan administrators.