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  • Solo 401k requirements

    I am a partner in a private practice surgery group.  I am setting up individual moonlighting at a hospital for call outside of the group's established call responsibilities.  If this is set up as an individual contract can I set up a solo 401k off of the income generated?  I have a profit sharing 401k with my group currently.  Is there a minimum amount you need to earn to do this?

  • #2
    First, the required question. Are you legitimately an independent contractor rather than someone that the hospital should properly be classifying as an employee?

    In order to be considered self-employed, you need to be engaged in a trade or business with the intention to make a profit. In order to open and contribute to a one-participant 401k, your trade or business actually has to make a profit in the current year or have made a profit from the same trade or business in a previous year.

    The IRS has never defined any required minimum amount of net profit. Personally, I would consider a net profit * 0.9235 >= $400 which would require paying SE tax as kind of a safe harbor.

    Note: Your employee salary deferral is limited to $18,000 across all qualified plans from all employers. If you make the full deferral in your group's 401k, you will only be able to make an employer contribution in your one-participant 401k. This is limited to 20% of your net self-employment income (net profit - 1/2 SE tax).

    P.S. There may be an affiliated service group problem with both you and the group providing similar services to the same hospital. This is complicated and maybe needs a professional determination.

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    • #3
      imo, if the hospital classifies you as an IC, the monkey is on their back, not yours. To add to  spiritrider's (always) excellent response, a good check to determine if you are an IC is if you would be available to other groups or hospitals for same or similar work and do you have control over your own hours.

      spiritrider, not sure what you mean by "or have made a profit from the same trade or business in a previous year" - could you clarify?
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4




        spiritrider, not sure what you mean by “or have made a profit from the same trade or business in a previous year” – could you clarify?
        Click to expand...


        The general assumption is that you need to have net self-employment income (net business profits - 1/2 SE tax) in that year in order to open a one-participant 401k, but actually you can open such a 401k if you have had self-employment income for that business in any prior year.

        This would be useful in the following scenario: You are an 1099 independent contractor who had net self-employment income in 2014/2015 until you and your spouse had a new bundle of joy. You had set up a SEP IRA and contributed to it for 2014/2015. When the little tyke was born, you decided to not work the extra hours for the next couple of years, but do not close the business. The fact that you will not have net self-employment income for 2017, does not preclude you from opening a one-participant 401k in 2017 and rolling over the SEP IRA. The reason for doing this is so you can do a backdoor Roth in 2017.

        I know... maybe a pretty rare scenario, but there maybe other scenarios and reasons why someone might want to open a one-participant 401k where they have no revenue for that year, but have in the past.

        Reference 26 U.S. Code 401(c)(B)(i & ii).

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        • #5


          Reference 26 U.S. Code 401(c)(B)(i & ii)
          Click to expand...


          spiritrider, how would the IC calculate the contribution limitation for 2017?
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6







            Reference 26 U.S. Code 401(c)(B)(i & ii)
            Click to expand…


            spiritrider, how would the IC calculate the contribution limitation for 2017?
            Click to expand...


            There would be no contribution allowed, because there would be no net self-employment income. Sometimes people don't have a workplace plan to rollover IRA assets to allow them to do a backdoor Roth and also don't have net self-employment income. This is an option for a few in that situation who might not know about it, that allows them to open the 401k.

             

             

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            • #7
              Great information, thanks!  I think I could classify as an IC because I would only be on call for that hospital during that time frame and I would set up the weekends I cover.

              To clarify: as a solo independent contractor in this scenario I could put 20% of my earnings in a solo 401k as an "employer" contribution?  I would also place 18k in my group's profit-sharing 401k as an employee.

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              • #8


                There would be no contribution allowed, because there would be no net self-employment income. Sometimes people don’t have a workplace plan to rollover IRA assets to allow them to do a backdoor Roth and also don’t have net self-employment income. This is an option for a few in that situation who might not know about it, that allows them to open the 401k.
                Click to expand...


                Ah, now I see. Very limited use but quite useful should the situation arise. Thanks for teaching me something new!
                Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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