Two jobs, two retirement plans?

Perhaps you make a nice salary at a day job and also run a small side business that's taking off. Can you contribute to two retirement plans if you work two jobs? Good question (not to mention common), and the answer depends on the connection between your work and how you save.

As long as your two businesses have no legal overlap or affiliated relationship, you can contribute to two retirement plans  —  to the tune of six figures annually.

According to the Internal Revenue Service, in 2015 you can contribute $53,000 per job, up to $106,000 each year to your defined contribution plans. These plans include workplace 401(k) plans, simplified employee pension (SEP) individual retirement accounts, profit-sharing plans, and 403(b) plans, which are for certain public school employees, employees of tax-exempt organizations, and ministers.

Not only can you double your savings, but the money you put away from your side business can help reduce your tax bill.

To illustrate, let's say Jane works for XYZ Corp. and makes her maximum allowable salary deferral contributions to her 401(k) of $18,000 ($24,000 if she's 50 or older); her employer kicks in another $35,000, meeting the $53,000 limit in total. She also earns $300,000 running a consulting business as a sole proprietor. There is no common ownership between Jane's business and XYZ Corp.

If she establishes a 401(k), SEP IRA or profit-sharing plan for the consulting business, she can contribute up to $53,000 to her account under that plan. Jane's total contribution for the year can be up to $106,000 ($112,000 if she's 50 or older, as she can use the $6,000 catch-up provision only once).

If you make less at your side job, a solo 401(k) may be twice as nice.

Typically, a SEP IRA is the best option for someone who already maxed out a 401(k) at work or who earns enough self-employment income to reach the $53,000 contribution ceiling. Employers can only contribute the lesser of 25% of your compensation or $53,000. If you earn $100,000 from your side job, you as your own employer can only contribute $25,000 to a SEP IRA. And if you do earn $300,000, you are still limited to the $53,000 max.

In these instances you can navigate these limits with another option: the solo 401(k), aka an independent, one-participant or family 401(k), which allows you to contribute as both employer and employee.

In the case that you make $100,000 from your side business, if you open a solo 401(k), you can contribute $18,000 as an employee in addition to $25,000 as an employer (making $43,000, under the $53,000 total max). Whereas if you had contributed to a SEP IRA, your maximum contribution would have been $25,000.

Important note: Employee contributions are aggregated across all your retirement plans. So if you contribute $10,000 to your day job 401(k), you can only add an additional $8,000 employee contribution to the solo 401(k) for your side business.

You must also establish a solo 401(k) within the calendar year, so no later than Dec. 31. You can open and fund a SEP IRA until the due date for filing your 2015 tax return IRS Form 1040, including extensions to file  —  meaning you can open and contribute to your SEP until the middle of October next year.

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