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Tax advantaged account options from K1 income?

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  • Avatar jsf80 
    Participant
    Status: Physician
    Posts: 2
    Joined: 03/04/2019

    Next summer I will start a new job with a single specialty surgical group and receive W2 income. It’s an employed structure, not partnership. I can buy into a surgery center and the distributions will be paid on a K1. There’s no 1099 income with this group. I’m 5 months into my personal finance education and find the Schedule K1 confusing. Is there any direct or indirect way to use that income to contribute to some type of retirement account (that is not the company sponsored 401K plan)? The surgery center is it’s own LLC, it will not be passive income as I will be working there and have an equity position in it. Based on what I’ve read, it sounds like it is not legal to form my own LLC, have the K1 distributions paid to my personal LLC, then create a solo 401K, and then fund my 401K from the K1 income. Is that correct? Thank you for your time!

     

    #232997 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4410
    Joined: 01/08/2016

    K1 isn’t earned income.

    #232999 Reply
    Avatar DCdoc 
    Participant
    Status: Physician
    Posts: 554
    Joined: 06/14/2016

    No (peds answer)

    #233032 Reply
    Liked by Peds
    Avatar DavidGlennCPA 
    Participant
    Status: Accountant
    Posts: 57
    Joined: 06/12/2019
    Earnest refinancing bonus

    Partnership K-1s can constitute earned income if Box 14 shows that it’s earnings subject to self-employment.  The only way you’ll get more retirement contributions from this K-1, besides showing it’s subject to self-employment tax, is for the partnership itself to have a plan and then the contributions would be reported on the K-1 in Box 13.  You’d then report the deduction on your personal tax return.

    The surgery center employees would likely need to participate so it may be cost prohibitive depending on the specific circumstances.

     

     

    David Glenn, CPA | Glenn Advisory
    https://www.taxcpafordoctors.com | (808) 321-5664

    #233045 Reply
    mb(a)CPA mb(a)CPA 
    Participant
    Status: Accountant
    Posts: 18
    Joined: 04/01/2019

    I second DavidGlennCPA.  The only way to make a retirement contribution from K-1 income is through the K-1 entity.  You cannot independently contribute to something on the basis of K-1 income.

    #233086 Reply

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