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 ??


@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.

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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