I have a full time job and rental properties. I'm looking for ways to reduce my taxable and am looking into whether 1) I qualify for a solo 401k as a landlord and 2) whether it will help me reduce my taxable income. Is there anyone here that does this or has looked into this?
A 401k is a reduction against your earned income, so it's tailored more toward Self Employment income. It sounds like your rental income is passive, so a Solo 401k won't work with it. If your employer does not offer a 401k plan, then your next best option is probably going to be an IRA.
In order for you to qualify and establish a Solo 401k plan you need to meet following criterias:
- Generate self-employment income or own a small business
- You can not have any full time common law employer working for your business except you and your spouse.
The income from your rental properties is considered 'passive' (you need active, earned self-employment income). Let's suppose you had that income, in this case contributions to your Solo 401k plan can be made from earned SE income, you can not use your W2 income to contribute into Solo 401k.
Basically, think about Solo 401k 's as being for 1099 income. Also total 401k contributions can never be more then whatever the government maximum is for your age. If you have 2 jobs both 401k contributions can only add up to the government maximum for your age. If you can I would max your 401k at your regular job. If your 401k is limited because your are in a small company and considered highly compensated my personal experience is there is no fix.
If you have no 401k (or equivalent ) at your w-2 job maybe someone else has some ideas on what to do. I had a friend who was able to convince the company owner with no 401k to start a SEP but he is a very persuasive guy.
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