K-1 Rules for Solo 401k

[Bama GU]

Hello WCIs -

 

I'm a hospital employed urologist making W2 income and maxing my available tax-advantaged accounts.  I am also a limited partner in an LLC that distributes monthly income via a K-1 (lithotripter group).  I've found conflicting information regarding this income: is it earned, or unearned?  Further, could I use this income to setup a solo 401K for more tax-advantaged space?

 

Any thoughts/ideas/comments appreciated.

 

-GU in 'Bama

[jfoxcpacfp]

Bama GU wrote:

I’m a hospital employed urologist making W2 income and maxing my available tax-advantaged accounts.  I am also a limited partner in an LLC that distributes monthly income via a K-1 (lithotripter group).  I’ve found conflicting information regarding this income: is it earned, or unearned?  Further, could I use this income to setup a solo 401K for more tax-advantaged space?

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1. Unless you receive guaranteed payments (which I have never seen for a limited partner), your income is passive and included in the NIIT (net investment income tax) calculation


2. No

Ownership in a limited partnership is an investment, not an activity with active participation. The general partner (every LP must have at least 1) has earned income.

In exchange, the limited partners have no liability, while the GP(s) do.

[Bama GU]

Johanna -

 

Thank you for the information.  I suspected this was the case, but wasn't sure.  Again, thank you.

 

God Bless -

 

Bama GU