Can a Rental Building LLC have a Individual 401k ?

10 Replies

I own & manage a Rental Office Building & have a LLC to manage all related affairs.

Can my LLC open a Individual 401k for retirement savings ??

Thanks

Not sure the LLC itself is the only factor - I think it depends on the activity of the LLC.

@Carl Fischer Might know.

Nisha,

you have to have business with "earned income" in order to qualify for a Solo 401k plan. Rental income is considered passive, so if that is the only income your LLC generates then it would not be an active business, just holding entity.

@Nisha Saxena

Check with your CPA. If the income to the LLC is wholly passive rental income, then that is investment earnings, not self-employment income. If some or all of the income is considered to be earned income, such as for management services, then that would qualify as self-employment income capable of being used to sponsor a Solo 401(k) and make contributions.

Thank You, I appreciate your replies

@Nisha Saxena

As others have mentioned, you must have self-employment activity to create a Solo 401k. Your management of the building may qualify, but if you're unsure checking with a qualified tax advisor is a good start. If you currently separate your income between rental and management, or otherwise pay yourself a management fee, that's a good sign that you have at least some self-employment income and could setup a Solo 401k.

@Nisha Saxena

The property management company should generate management fees thus earned income thus a 401k. This is a good way to put away $18k in a 401k Roth. Only expense is the SET 16%. 

What if you self manage your rental properties not through a technically separate management company entity?

@Karen W.

The same principle applies in that you might have earned income based on your active involvement in creating the income. Your tax advisor might recommend creating an entity to receive management fees, though. Each situation can be unique, so a brief consult with a professional is a good idea.

@Nisha Saxena

Since you manage the rental office building, chances are good that you are performing material services (see IRS Publication 560 for more on material services) which is one of the requirements for treating the activity as self-employment income, which should qualify you for a solo 401k plan. Also, it will depend on what tax return your CPA is filing to report such activity.  

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