individual 401K

[jfoxcpacfp]

mjguirl wrote:

I max out my define benefits plan/401K each year through my multi partner GI practice of $53,000.  I am under age 50.  I also have an LLC that I co own with my wife which contains our rental properties.  My wife has an individual 401K through the LLC.  Can I also set up an individual 401K (for myself) even though I contribute the max $53K to my practice 401K/define benefits plan?  I was told by one “professional” I could not.

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Perhaps your wife but almost certainly not for you as you have a "day job". You must have earned income to contribute to a retirement plan and rental income is passive unless your wife manages to qualify as a real estate professional. There also might be a possibility if one of you is responsible for tasks that could justify a paycheck, such as maintenance, bookkeeping, collections, etc. But then you would have to get into payroll reporting and FICA taxes that you don't otherwise have for passive income, which would be a high hurdle to overcome. As you probably know, contributions to a 401k reduce federal and state taxable income, but not FICA wages, so you would pay FICA (as employer and employee) on the total pay.

If you have a teenager who could work for the RE business, you could have an opportunity to pay him/her and contribute to a Roth on your child's behalf.

[litovskyassetmanagement]

mjguirl wrote:

I max out my define benefits plan/401K each year through my multi partner GI practice of $53,000.  I am under age 50.  I also have an LLC that I co own with my wife which contains our rental properties.  My wife has an individual 401K through the LLC.  Can I also set up an individual 401K (for myself) even though I contribute the max $53K to my practice 401K/define benefits plan?  I was told by one “professional” I could not.

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Your 'defined benefits/401k plan' is not really a defined benefit plan.  It sounds like a 401k with profit sharing because a DB plan would have a significantly higher contribution than $53k, and maybe that's what you might want to take a look at as a practice - adding a Cash Balance plan to your 401k plan to increase contributions, because that's a lot easier than becoming a professional real estate investor.

Would you or your wife qualify as professional real estate investors?  Are you getting a salary from the LLC?  If yes, then you might be able to set up a solo 401k for that LLC.  Otherwise, it would be passive/unearned income, and you can not contribute that income into a retirement plan.  You would be able to contribute 25% of the LLC income if you get a W2, but ONLY if you are officially considered a professional and file taxes as such:

http://www.creonline.com/real-estate-professional-tax-loophole.html

Which state do you reside in? What percentage of the GI practice do you own?

 

[Zaphod]

Yes you can, whether individual or otherwise depends on details of your llc etc.... You of course have to have income from the LLC. The only thing you cant do is contribute the "employee" contribution more than once, that 18k is it. Everything else must be categorized as employer contributions so just pick where that works best.

 

[mjguirl]

I max out my define benefits plan/401K each year through my multi partner GI practice of $53,000.  I am under age 50.  I also have an LLC that I co own with my wife which contains our rental properties.  My wife has an individual 401K through the LLC.  Can I also set up an individual 401K (for myself) even though I contribute the max $53K to my practice 401K/define benefits plan?  I was told by one "professional" I could not.