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Partner with K 1 and solo 401k

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  • jfoxcpacfp
    replied


    I also don’t get how you can get a 1099 as a partner in Office A (in addition to K1), maybe Johanna can explain that one.
    Click to expand...


    I haven't seen that before. Sounds like a GP to me, but the effect is the same, so, while it's wrong, I don't think it would cause a problem with the IRS.

    Leave a comment:


  • litovskyassetmanagement
    replied




    Hi,

    I’m an dentist. 2 years out of residency and 2017 was the first year I started contributing to tax-deferred accounts. I contributed to my solo 401k for 2017 but now I’m second guessing myself.

    I work as an independent contractor (1099 income) for a couple offices locally. For simplicity sake, I work at office A and office B. Both A and B have their own LLCs that do business as Gorgeous Smiles, for example Gorgeous Smiles A, Gorgeous Smiles B. Although these offices operate under the umbrella name Gorgeous Smiles, each has its own set of owners.  I’m a minority partner at office A. I’m paid as an IC (1099 income) at both offices. In addition I receive W2 (for being board member) and K 1 (owner profit) from office A.

    I do not have a separate LLC for my independent contracting work. I filed schedule C for 2016 tax return.

    Income (the 1099 income below is close to the exact amount. I’m not listing any W2 or K1 income since I don’t think they are relevant in this case)

    Office A: 260k 1099 income. Have ownership at A

    Office B: 140k 1099 income. No ownership.

    Gorgeous Smiles offers 401k to its employees and owners. I chose to set up a solo 401k instead. I could contribute more with my 1099 income and it is way cheaper.

    So in 2017 in contributed a total of 54k to solo 401k. BUT then I saw this posted by spiritrider recently and now I’m confused.

    “For purposes of section 401, a sole proprietor is considered to be his own employer, and the partnership is considered to be the employer of each of the partners. Thus, an individual partner is not an employer who may establish a qualified plan with respect to his services to the partnership.”

    so my questions are:

    1. Can I still use the solo 401K instead of the practice’s 401k plan? why not?

    2. And if not, should that only apply to my 260k income from practice A since that is the only office I have ownership. I can still use the 140K from office B to fund my solo 401K, correct? why not?

    3. if only 140K income from office B be used to contribute to solo 401k, then I overfunded my 401 k. Should be less than 54k based on the income of 140k. Is there a penalty to withdraw? and how to amend this with the IRS, which form?

    4. If the answer is only use income from office B to fund the solo 401k, then should I file two separate schedule C’s for income tax return? or can I still combine them?

     

    any thoughts and feedbacks are greatly appreciated!

     

     
    Click to expand...


    Sounds like an affiliated service group to me.  We'd need to examine the facts here because the details matter.  If this is an affiliated service group, then you only get a single plan limit for both offices A and B.  But it gets worse. In fact, K1 from office A DOES matter, and substantially so. If you have K1 from practice A, it sounds like it should have a 401k plan with a plan document (that is the same for all partners in the group), and affiliated service group means you will need to have the same plan for office B, and no solo 401k plan would be allowed, and all of the staff in A and B should be included in this plan.  This is potentially a pretty big mess if the retirement plan is not structured correctly. In any case, in such a scenario I would need to bring in an ERISA attorney as the implications of getting this wrong are pretty severe.

    I also don't get how you can get a 1099 as a partner in Office A (in addition to K1), maybe Johanna can explain that one.

    Leave a comment:


  • jfoxcpacfp
    replied







    If @spiritrider doesn’t know, then I’m afraid you may be SOL here, but you can try messaging Kon Litovsky.
    Click to expand…


    I’m glad I’m not the only one that didn’t know the answer to this one.  Wish we could have been more help.
    Click to expand...


    heh heh, you're in good company with @spiritrider, can't say much about myself.

    Leave a comment:


  • cgossage
    replied




    If @spiritrider doesn’t know, then I’m afraid you may be SOL here, but you can try messaging Kon Litovsky.
    Click to expand...


    I'm glad I'm not the only one that didn't know the answer to this one.  Wish we could have been more help.

    Leave a comment:


  • jfoxcpacfp
    replied
    If @spiritrider doesn't know, then I'm afraid you may be SOL here, but you can try messaging Kon Litovsky.

    Leave a comment:


  • Malocclusion
    replied
    Thanks spiritrider for your response. You're right about the lack of control in this partnership.

    Anyone can also chime in?

    How do I find retirement plan professional?

     

     

    Leave a comment:


  • spiritrider
    replied
    This fact pattern is not a simple one of a partner using W-2 wages and/or K-1 distributions to improperly to adopt and contribute to a one-participant 401k.

    You have separate 1099 income from two businesses that may or may not matter what the other connections are.

    I am not a retirement plan professional, but as a minority partner, I do not believe you are in a control group with Office A. However, there are also affiliated service group rules. These rules can be complicated. You should consult with a retirement plan professional to verify both these issues.

    I also can not really comment on how the Gorgeous Smiles affiliation is structured. You would be surprised how some of these franchises and marketing groups are legally structured. A lot of times the "owners" are much less than they think they are.

    The only thing I can really comment on is the corrective action for excess employer contributions if your earned income is reduced. 401k excess employer contributions can not normally be returned. I do not think this would qualify for the extremely limited "mistake of fact".

    They would be subject to IRS corrective procedures. Search for IRS fix-it guide for qualified plans. I believe this would require a plan filing with a 10% excise tax and application of 2018's employer contribution space if you were even eligible in the first place.

    Do not make any 2018 contributions until you have consulted with a retirement plan professional.

    Don't panic. You might be fine. You might have a small mess or a bigger one. In any case it can be solved with the right professional knowledge.

    Leave a comment:


  • Malocclusion
    started a topic Partner with K 1 and solo 401k

    Partner with K 1 and solo 401k

    Hi,

    I'm an dentist. 2 years out of residency and 2017 was the first year I started contributing to tax-deferred accounts. I contributed to my solo 401k for 2017 but now I'm second guessing myself.

    I work as an independent contractor (1099 income) for a couple offices locally. For simplicity sake, I work at office A and office B. Both A and B have their own LLCs that do business as Gorgeous Smiles, for example Gorgeous Smiles A, Gorgeous Smiles B. Although these offices operate under the umbrella name Gorgeous Smiles, each has its own set of owners.  I'm a minority partner at office A. I'm paid as an IC (1099 income) at both offices. In addition I receive W2 (for being board member) and K 1 (owner profit) from office A.

    I do not have a separate LLC for my independent contracting work. I filed schedule C for 2016 tax return.

    Income (the 1099 income below is close to the exact amount. I'm not listing any W2 or K1 income since I don't think they are relevant in this case)

    Office A: 260k 1099 income. Have ownership at A

    Office B: 140k 1099 income. No ownership.

    Gorgeous Smiles offers 401k to its employees and owners. I chose to set up a solo 401k instead. I could contribute more with my 1099 income and it is way cheaper.

    So in 2017 in contributed a total of 54k to solo 401k. BUT then I saw this posted by spiritrider recently and now I'm confused.

    “For purposes of section 401, a sole proprietor is considered to be his own employer, and the partnership is considered to be the employer of each of the partners. Thus, an individual partner is not an employer who may establish a qualified plan with respect to his services to the partnership.”

    so my questions are:

    1. Can I still use the solo 401K instead of the practice's 401k plan? why not?

    2. And if not, should that only apply to my 260k income from practice A since that is the only office I have ownership. I can still use the 140K from office B to fund my solo 401K, correct? why not?

    3. if only 140K income from office B be used to contribute to solo 401k, then I overfunded my 401 k. Should be less than 54k based on the income of 140k. Is there a penalty to withdraw? and how to amend this with the IRS, which form?

    4. If the answer is only use income from office B to fund the solo 401k, then should I file two separate schedule C's for income tax return? or can I still combine them?

     

    any thoughts and feedbacks are greatly appreciated!

     

     
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