Self Directed Solo 401K and DQ for S-Corp Share Ownership?

Question

Hello 401K gurus and Tax Specialists! I have a couple questions I haven't found eslewhere.

I'm considering a partnership of some sort with another landscape contractor. We are unsure how to structure the arrangement. I'm consulting with my CPA next week, and had a meeting with a financial advisor today.

My current situation (sole proprietor with no w2 employees) qualifies for me to start a self directed solo 401k. This retirement setup is important to me, because I want to use the roth feature, max out the 18K roth contribution, and use that to buy rental property inside the 401k that can be improved, rented, and/ or traded up inside the account all tax free.

My concern is with forming a separate business that will have w2 employees. Which of these would disqualify me from having the solo 401k account with my current business. .

50/50 partnership

49/51 partnership with me being the 49

S-Corp created by the other guy with me having 50% of the shares

S-Corp created by the other guy with me having 49% of the shares

If you have another structuring suggesting that would allow me to keep the solo 401k, feel free to add it. We already work together as separate companies, but want to go bigger and need to structure things properly. Any advice is greatly appreciated.

Cameron Skinner · Answer

@Steven Hamilton II has a good plan, I do joint ventures all the time. For example My LLC provides money and accounting they provide work. Then we split profits. The project is titled in my name so income is reported in my LLC and then my partner will receive a 1099 for the % of profit I pay him.

It's not a formal partnership and I usually just draw up a "memorandum of understanding" a one page document laying out the basic terms of the agreement so there is no misunderstanding.

Mark Nolan · Answer

@Cameron Price

1. Click on the following IRS PDF link that discusses the controlled group rules and your accountant should be aware of these rules already:

controlled group

2. Note the that you cannot improve the solo 401k owned properties yourself.

3. Note that flipping done inside a solo 401k is generally subject to unrelated business income tax.

https://www.irs.gov/Charities-&-Non-Profits/Unrela...

Steven Hamilton II · Answer

It could be. However, I'd do what you have been doing. Split the profits internally like you are doing. Just 1099 his business accordingly if needed.

Cameron Price · Answer

would it technically be a different company? I have zero experience with legal partnerships, to be honest.

Cameron Price · Answer

Yep. I'm playing by the rules.

Is there really any benefit to forming a partnership in this case? We already team up to do jobs.

Steven Hamilton II · Answer

S corp for you and an S-corp form him.Your corporations can enter into a partnership.Are you positive your contractors are truly such and should not be employees? Be careful as this classification if reversed by the IRS or Department of Labor can mean significant taxes.

Cameron Price · Answer

@Steven Hamilton II

So we could both have S-Corps, but be in a partnership together? What is that called?

He wants to have w2 employees. I use 1099 contracted help in mine.

Steven Hamilton II · Answer

Is this employee full-time? Part time? And definitely an employee? I would strongly consider a joint venture agreement where you share the business between yours and his. Or even if you do partner, let YOUR CORP AND HIS CORP Partner in a partnership that issues K-1s to your corps. Then you are not as married and tied to him.

Self Directed Solo 401K and DQ for S-Corp Share Ownership?

Self Directed Solo 401K and DQ for S-Corp Share Ownership?

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