Solo 401K (Employer) with Maxed 403B?

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aristotelian
Posts: 2996
Joined: Wed Jan 11, 2017 8:05 pm

Solo 401K (Employer) with Maxed 403B?

Post by aristotelian » Thu Apr 20, 2017 9:13 am

Background:
Age: 42, 42, 2 kids
Tax Bracket: Federal 25%, State 5%
Income: $150K ($110K his salary, $15K wife self-employment, $20K his self-employment - see below)
Debt: None (mortgage paid off)

Current retirement assets

Taxable - $300K

His 403B - $185K (Contributing max $18K plus employer match of 10%)

Her Roth IRA - $140K

His Roth IRA - $90K

Her Individual 401K - unfunded

His Individual 401K - ????

Questions:

My kids recently received an inheritance that required court appointed custodianship for them to receive. For compensation for the custodianship, I am entitled to receive 1% annually, which turns out to be about $20K per year. I am planning to report this income on a schedule C (self employment income), although I do not receive any 1099. I am just learning about Individual 401K's to start deferring some of my wife's income. We have an account set up and ready to start funding. I currently make my max $18K contribution through my employer 403B plan. Per this thread (viewtopic.php?f=2&t=216761&p=3331593#p3331593), my understanding is that I could still make an employer contribution to an Individual 401k for this self-employment income. Per online calculator, I could make employER contribution of $3,717 even though I am making the max employEE contribution to my 403B. Can someone confirm this is case?

Spirit Rider
Posts: 6487
Joined: Fri Mar 02, 2007 2:39 pm

Re: Solo 401K (Employer) with Maxed 403B?

Post by Spirit Rider » Thu Apr 20, 2017 1:32 pm

First things first. Payments for custodians, trustees, executors, etc... Cannot be considered as business income unless you are "in the business" of providing such services. Providing such services in only one case especially a dependent, most certainly does not constitute being in the business of providing such services.

You can not report these payments on a Schedule C/SE claiming self-employment. These payments are "other income" reported on Form 1040, Line 21. No Schedule C/SE, not eligible for Solo 401k.

aristotelian
Posts: 2996
Joined: Wed Jan 11, 2017 8:05 pm

Re: Solo 401K (Employer) with Maxed 403B?

Post by aristotelian » Thu Apr 20, 2017 1:37 pm

Spirit Rider wrote:First things first. Payments for custodians, trustees, executors, etc... Cannot be considered as business income unless you are "in the business" of providing such services. Providing such services in only one case especially a dependent, most certainly does not constitute being in the business of providing such services.

You can not report these payments on a Schedule C/SE claiming self-employment. These payments are "other income" reported on Form 1040, Line 21. No Schedule C/SE, not eligible for Solo 401k.
OK, thanks. I am not sure where I got the Schedule C idea from, but that clears things up!

Spirit Rider
Posts: 6487
Joined: Fri Mar 02, 2007 2:39 pm

Re: Solo 401K (Employer) with Maxed 403B?

Post by Spirit Rider » Thu Apr 20, 2017 2:05 pm

It was a reasonable conclusion. After all, you are getting paid for performing duties.

It is just that the IRS does not generally consider non-professional fiduciaries (e.g custodian) to be engaged in a trade or business. The good news is there are no SE taxes.

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