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solo 401k affected by income source

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  • Avatar SC doc 
    Participant
    Status: Physician
    Posts: 2
    Joined: 05/04/2019

    I have a solo 401k /cash balance plan thru my LLC.All my 1099s from my moon lighting and medical directorships go to my LLC.The 1099 income is enough to max out my contributions.I have a K1 partnership income from my main practice .We do not offer any retirement benefits to our employees in the practice.I was wondering about routing my K1 partnership income into my LLC to save on medicare taxes.I have had conflicting advises as to the impact of this on my solo401k /cash balance contributions .Would appreciate any comments from folks in the same situation.

     

    #212365 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1709
    Joined: 02/01/2016

    Your K-1 share of the partnership’s ordinary income can not be considered revenue for your sole proprietorship.

    The partnership is the employer and the partner is considered an employee for retirement plan purposes. If the partnership does not have an employer retirement plan, you are out of luck on that self-employed earned income.

    Only your self-employed earned income from the sole proprietorship can be used as the basis for your one-participant 401k/cash balance plan.

    #212389 Reply
    Avatar SC doc 
    Participant
    Status: Physician
    Posts: 2
    Joined: 05/04/2019

    Thank you.Just to clarify LLC is an S-Corp with myself and my wife as employees.

    #212423 Reply
    Kon Litovsky Kon Litovsky 
    Participant
    Status: Financial Advisor
    Posts: 881
    Joined: 01/09/2016

    I have a solo 401k /cash balance plan thru my LLC.All my 1099s from my moon lighting and medical directorships go to my LLC.The 1099 income is enough to max out my contributions.I have a K1 partnership income from my main practice .We do not offer any retirement benefits to our employees in the practice.I was wondering about routing my K1 partnership income into my LLC to save on medicare taxes.I have had conflicting advises as to the impact of this on my solo401k /cash balance contributions .Would appreciate any comments from folks in the same situation.

     

    Click to expand…

    Spiritrider is 100% correct.  If the partnership sets up a 401k and/or a CB plan, you are allowed to contribute into 2 401k plans and 2 CB plans, so this would decrease your taxable income significantly provided that the other partners can benefit from this as well.

    Kon Litovsky, Principal, Litovsky Asset Management | [email protected]
    -401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

    #214519 Reply
    Avatar pilotnerd 
    Participant
    Status: Other Professional
    Posts: 5
    Joined: 04/23/2018

    So could one own half of a 2 member LLC (which is taxed as a partnership) inside of an LLC? And then in that separate company have a solo 401k?

    #216233 Reply
    Avatar pilotnerd 
    Participant
    Status: Other Professional
    Posts: 5
    Joined: 04/23/2018

    Maybe that wasn’t clear and can’t find the edit button…

    LLC #1 is a 2 member (not spouses) LLC. If I were to “sell” or otherwise transfer my half of LLC #1 to LLC #2 (single member owned by me), does the income from LLC #2 (which is entirely from the half owned in LLC #1) qualify for a solo 401k?

    #216234 Reply
    childay childay 
    Participant
    Status: Physician
    Posts: 853
    Joined: 01/09/2016

    Maybe that wasn’t clear and can’t find the edit button…

    LLC #1 is a 2 member (not spouses) LLC. If I were to “sell” or otherwise transfer my half of LLC #1 to LLC #2 (single member owned by me), does the income from LLC #2 (which is entirely from the half owned in LLC #1) qualify for a solo 401k?

    Click to expand…

    No. Otherwise everyone would just do that and not pay benefits to their employees.

    You can however have an LLC be the “employee” of LLC #1.  But it won’t help you with retirement contributions.

    No doubt @spiritrider will chime in with the relevant IRS link 🙂

    #216242 Reply
    Kon Litovsky Kon Litovsky 
    Participant
    Status: Financial Advisor
    Posts: 881
    Joined: 01/09/2016

    Maybe that wasn’t clear and can’t find the edit button…

    LLC #1 is a 2 member (not spouses) LLC. If I were to “sell” or otherwise transfer my half of LLC #1 to LLC #2 (single member owned by me), does the income from LLC #2 (which is entirely from the half owned in LLC #1) qualify for a solo 401k?

    Click to expand…

    If LLC 1 is the employer, LLC 1 has to set up a retirement plan. The only way to have the ability to set up separate retirement plans for two different entities is to have two independent businesses that are not under common control (or affiliated in any way to cause affiliated service group rules to kick in).

    Kon Litovsky, Principal, Litovsky Asset Management | [email protected]
    -401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

    #216244 Reply
    Liked by childay

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