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Am I eligible to set up a SOLO 401K?

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  • Am I eligible to set up a SOLO 401K?

    First and foremost, I would like to thank all contributing members of this forum, as I have learned a great deal over the last year.  I come seeking advice.

    I am seeking to set up a solo 401k.  Given the concern for "passive income" via my S Corp, I wanted to confirm that this is feasible.

    I am a W2 employee in which this is where the majority of my income comes from.  Via my W2 employer, I have access to a 401k (with employer matching), and a 457 b and f.  However, I have recently invested into an ASC (Ambulatory Surgical Center).  The annual distributions range from $180-220k annually per surgeon owner, depending on the year.  The physicians who are owners of the ASC have formed an S Corp/LLC, as it is partially owned by a local hospital (51/49% in favor of the physicians).  I spend, on average, 4 days a month operating at the ASC.

    My question is this:  With the income generated from the S Corp distributions, can I set up a solo 401k?

    Thank you for the help

  • #2
    First off, I have two significant concerns:

    1. Is the hospital incorporated? Corporations are ineligible to own shares in an s-corporation. Having a corporate shareholder (unless it is a QSUB, highly unlikely) will invalidate your S election. This is a very serious matter.

    2. Given that you perform services for the ASC, I don't see how you can not be paid for your services. Simply distributing the $ as ROI (return on investment) is problematic and I would strongly caution you to reconsider the compensation arrangement.

    Now, to answer your question: you are not eligible to contribute to a SOLO-401k given the facts presented, as the distributions do not represent "earned income". The ASC would have to pay wages to the owner-surgeons and set up a 401k plan (not SOLO, of course) wherein you could all participate. The only way I could see you having a SOLOk is if you contract with the ASC for services and bill them, to be paid by a 1099.

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