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Solo401K - whoops I didn't earn 1099 income...

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  • Solo401K - whoops I didn't earn 1099 income...

    Thought I’d get some community input and see if anyone had more specifics on the IRS rule for eligibility for transferring Simple to Solo401K.

    I transferred IRA and Simple IRA accounts into a Solo 401K early in 2017 with intent to earn 1099 income and do Backdoor Roth. Took a W2 Consulting position at staffing company “A”, then worked onsite at company “B” with intent to convert to 1099 consultant at company “B”. Verbal agreement with company “B” to do so, then VP was fired. Email negotiations with new VP to join company “B” as 1099 failed in Oct of 2017. I ended up taking position at company “B” as W2 employee, and was unable to earn 1099 income before end of the year.

    A few online comments from non-IRS sources basically say: “The Internal Revenue Service has no thresholds for how much profit a business with a Solo 401k plan must make. The generally accepted rule of thumb is that the IRS will consider legitimate businesses eligible if they are operated with the intention of generating profits”.

    Does history show intent? I generated income from my consulting business in 2012, 2013, 2014, and 2015 – but not 2016 (took a year off for the twins). No W2 income, unless you consider my wife’s since we file jointly.  2017 I was trying to relaunch my consulting business after moving to a new city and took a W2 position with intent to become 1099.

    I have not yet located specifics (dug through 590-A) on the IRS site if anyone has a suggestion on where to look.

  • #2
    I don't have any useful input, but is calling the IRS help line an option?


    • #3
      This was actually answered and then lost when the website went down and they reverted to a backup.

      The answer was basically that the IRS will consider my previous years of 1099 income as meeting the requirement to setting up the solo 401k.

      I didn’t explain that nearly as well as the original response.