A couple of Solo 401K questions

4 Replies

I know many on here are fans of Solo K plans. I cant find too much detailed info online and even my tax guy is not too familiar with them. So let me post my questions here for the experts

1. Does having passive rental income in an LLC qualify me to start a Solo K?

2. If I have access to a 401K at work, can I still open a Solo K? Does the max employee contribution still hold ie would it be 17.5K total in all plans?

3. Does it matter if my LLC has more than one member (other than spouse)?

4. Is the max annual contribution $17.5K plus 25% of company profits?


Thanks for your replies.

@Anish Tolia

happy to answer your questions:

  1. In order to qualify for Solo K you need to have self-employment activity. Passive income is not considered self-employment. So the answer is no. However, most people can easy create self employment activity. We can talk and I'll give you some ideas.
  2. You can have Solo K in addition to your 401k at work. The salary deferral contributions however, will be subject to the same limit of $17,500 ($23,000 if you are over 50)
  3. I'm assuming that this question is connected with question No. 1. In this case you don't qualify for Solo K, regardless how many members are there. However, if the LLC is legit active business (not passive), then you can still qualify for Solo K even if you have multiple members, as long as there are no full time employees other than the owners.
  4. The max contribution for Solo 401(k) plan is consists of salary deferral of $17,500 (plus additional $5,500 if you are over 50 years of age) + profit sharing component of 20-25% of the compensation (depending on business structure). The combined maximum is $57,000 for 2014.

Let me know if you have any additional questions.

@Anish Tolia

To add to what others have said if you do start a Solo 401K you can rollover traditional 401K from previous employers or rollover funds in your / your wife's traditional IRA to invest with, very powerful in my opinion, especially if you have built up a sizable chunk over the years.

You and your wife should be the only full time employees but you could have part-time employees as long as they do not work more than 1000 hours/year I believe.

1.Does having passive rental income in an LLC qualify me to start a Solo K?

See following IRS link for information on this: http://www.irs.gov/Individuals/Tax-Trails---Self-Employment-Income-9

2.If I have access to a 401K at work, can I still open a Solo K? Does the max employee contribution still hold ie would it be 17.5K total in all plans?

See following IRS link for information on this: http://www.irs.gov/Retirement-Plans/How-Much-Salary-Can-You-Defer-if-You%E2%80%99re-Eligible-for-More-than-One-Retirement-Plan%3F

 

4. Is the max annual contribution $17.5K plus 25% of company profits?

See following for information regarding making contributions: http://www.irs.gov/Retirement-Plans/Retirement-Plan-FAQs-Regarding-Contributions-How-much-can-I-contribute-to-my-self-employed-SEP-plan-if-I-participate-in-my-employer%E2%80%99s-SIMPLE-IRA-plan%3F

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