Entity classification for LLC where SD 401k trust is the member

4 Replies

I am planning to create an LLC with the Solo 401k trust as the member to provide liability protection when I purchase real estate and some separation of assets within the 401k. Should I elect something other than the default disregarded entity? The IRS filing info says "If the only member of the LLC is not an individual, the LLC income and expenses are reported on the owner/member's tax return." Is there any reason to change this to be taxed as an S corp?

@Shera Gregory

This is a conversation to have with your licensed tax advisor.

Generally speaking, an entity that is wholly owned by a 401(k) would be disregarded, so that the tax liability will flow to the 401(k).  

Partnerships between a 401(k) and other investors, or plan-held entities that may be used for an activity with UBIT exposure may benefit from alternative elections.

@Shera Gregory

On another note, you will want to make sure the LLC operating agreement includes language surrounding the solo 401(k) rules. You also need to make sure the LLC has not previously been funded with non-retirement funds.

@Shera Gregory

Brian is correct, it's a good idea to check with a qualified advisor on this. There are firms that will setup this kind of specialized LLC for a reasonable fee and guide you on these kinds of questions.

Typically these single member LLCs are disregarded entities and no S-election is made. They are usually setup such that the Solo 401k trust would be the member, as you mentioned, and you would be the manager.

Thanks everyone. I do have a very good advisor who created the operating agreement for the LLC that is owned by my Roth IRA - and, yes, we have another person (non-disqualified) as manager. I will ask him whether we need to tweak the OA for any differences in the 401k as a member vs the Roth IRA.

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