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401k plan at the office and solo 401k plan for contracted income?

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  • 401k plan at the office and solo 401k plan for contracted income?

    I have a 401k plan at the office with profit sharing that I am going to contribute the maximum to this year.  I also have about $40k in income for call at a hospital that is reported on a 1099.  I know I can only make one employee contribution of 19k this year but is there a way to set up a solo 401k for the income on the 1099?  Is it worth it?

  • #2
    yes.

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    • #3
      From what I have read I could defer 25% of the income from the "employer" portion so $10,500 per year.  Is this correct?

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      • #4
        No. While the maximum employer contribution is always 25% of compensation, for the self-employed it is calculated as 20% of self-employed earned income (business profit - 1/2 SE tax). This is because the employer contribution itself reduces the compensation available for annual additions.

        For example, with $40K in self-employed earned income the maximum employer contribution is = $40K * 20% = $8K. To prove this is correct, it is also 25% of ($40K - $8K = $32K) * 25% = $8K.

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        • #5
          I'll just leave this here, this would be good to look into, but does take some effort

          https://www.whitecoatinvestor.com/forums/topic/research-into-solo-401k-with-intent-for-mega-backdoor-roth/#new-reply-207943

           

           

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          • #6




            I have a 401k plan at the office with profit sharing that I am going to contribute the maximum to this year.  I also have about $40k in income for call at a hospital that is reported on a 1099.  I know I can only make one employee contribution of 19k this year but is there a way to set up a solo 401k for the income on the 1099?  Is it worth it?
            Click to expand...


            Do you own 100% of your practice? If so, this is a controlled group so no solo 401k plan would be possible without both plans having a single limit.  If you are a partner, however, then a solo 401k is possible (if one makes sense).  Just wanted to get this one across as many docs get in trouble with controlled group rules.
            Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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            • #7
              If your on call 1099 income is from a hospital that a practice you are a partner of, routinely and not insignificantly provides services for. You may likely be in an Affiliated Service Group.

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              • #8




                If your on call 1099 income is from a hospital that a practice you are a partner of, routinely and not insignificantly provides services for. You may likely be in an Affiliated Service Group.
                Click to expand...


                That, too, though I believe OP is a dentist, so chances are the dental practice most likely has their own patients vs. hospital referrals.  But in the case of a doctor practice, that's definitely a big concern as there are often arrangements to share offices/staff in providing services, so facts and circumstances are definitely important even if there is not a controlled group.
                Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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                • #9




                  If your on call 1099 income is from a hospital that a practice you are a partner of, routinely and not insignificantly provides services for. You may likely be in an Affiliated Service Group.
                  Click to expand...


                  A real answer certainly involves expert analysis of specifics. But generally is an ASG avoided if there is not a payment relationship between said hospital and said practice.

                  In other words, physician group provides services at the on call hospital. But all payments to physician group are from patients, professional services. Not payments from hospital.

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                  • #10







                    If your on call 1099 income is from a hospital that a practice you are a partner of, routinely and not insignificantly provides services for. You may likely be in an Affiliated Service Group.
                    Click to expand…


                    A real answer certainly involves expert analysis of specifics. But generally is an ASG avoided if there is not a payment relationship between said hospital and said practice.

                    In other words, physician group provides services at the on call hospital. But all payments to physician group are from patients, professional services. Not payments from hospital.
                    Click to expand...


                    Not necessarily. The hospital may not pay the practice, but if hospital does the billing for the practice, this can be an issue. And also the use of shared space/staff can be an issue far as ASG determination.  Many ASG issues stem from ownership though, such as when partners have ownership interest in another entity and they also provide service at that entity.
                    Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

                    Comment


                    • #11
                      I have an  Scorp and contribute to cash balance /401k plan thru this income. I am also  part of a group practice which issues k1 partnership income.If I get this K1 income directed to my Scorp will this affect my CB/401 k contribution.Our partnership does not offer retirement benefits to the employees. Currently all the income going into my Scorp is from out side the practice contract income.Trying to get as much medicare taxes thru Scorp distributions.If this is not an option can I open another Scorp to direct my K1 income which will come with its own complexity and cost?

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                      • #12




                        I have an  Scorp and contribute to cash balance /401k plan thru this income. I am also  part of a group practice which issues k1 partnership income.If I get this K1 income directed to my Scorp will this affect my CB/401 k contribution.Our partnership does not offer retirement benefits to the employees. Currently all the income going into my Scorp is from out side the practice contract income.Trying to get as much medicare taxes thru Scorp distributions.If this is not an option can I open another Scorp to direct my K1 income which will come with its own complexity and cost?
                        Click to expand...


                        You shouldn't commingle the two in this case. I don't believe that K1 income can go into your personal plan, simply because what stops you from opening a personal plan for just the K1 income then?  This would clearly be wrong. If you had multiple sources of 1099 income, that would be different.  But in this case K1 income can absolutely not go to your personal S corp. There is no way you can use K1 income from partnership to make a contribution in a personal plan, plain and simple, and no way around this by structuring entities, etc., just makes things complex but leads to the same result.  Your best bet is to convince the partnership to adopt a plan. The reason they haven't done so is probably bad understanding of what happens with a plan like that (for example, thinking by some partners that they must contribute to one or both plans, which they don't).
                        Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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