K1, Solo 401K, and SEP-IRA Problems

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K1, Solo 401K, and SEP-IRA Problems

Post by Penguin_MD » Tue Oct 23, 2018 7:47 pm

First let me say I'm new here, but I've been lurking for about 4 months.

My eyes have been awakened to many mistakes, but fortunately I've got time to remedy nearly all of them! I hope to post a detailed "State of the Finances" in the coming weeks to show the community what our financial world looked like 4 months ago vs. now.

In consideration of optimizing our future retirement (and possibility of a megaback door Roth via custom Solo 401k), I was investigating over at The Finance Buff...

As I have learned over the past 6 months of this journey, this then led me down the mental path that something may be awry with our 2017 SEP-IRA's.

I started this crosspost beginning at https://www.whitecoatinvestor.com/forum ... ost-159313

My frame of reference is the prior forum post at viewtopic.php?t=180035#p2727916


In summary, my wife is a PA at a local clinic. She is paid as a “limited partner” K1 Form 1065.

She has 0% ownership. In fact her K1, form 1065 looks like this:

The physician owns the LLC 100%. The mid-level providers are given K1’s. The mid-levels see patients and get paid a contractual proportion of what the practice collects for these patients. Over at the WCI forum, some questioned whether this is even a legitimate form of compensation. They are basically treated/acting like W2 employees as it pertains to work stipulations, yet they do not get paid unless they are physically at work seeing their own patients.

Her 1065 is as follows:

Part II:

G: “limited partner or other LLC member”

H: Domestic partner

I1: Individual

I2: empty

J: 0% in all lines

K: Empty

L: Empty except for “Tax Basis” is checked

M: No

Part III:

Line 4 "Guaranteed payments" and Line 14 "Net earnings (loss) from self-employment" are the same (the contractual proportion of collections are paid to her in the form of a check monthly)

All other lines empty.

We both made contributions to SEP-IRA’s in 2017 based on the advice of our CPA. Mine was from 1099 income, but hers was calculated based on the K1 line 14…and subsequently calculation of “Total Nonpassive Income” on a separate worksheet.

1) I’m wondering if her SEP contribution was even allowable? Seems like according to the prior Bogleheads forum post, the answer is no. We have now learned that there is a SIMPLE-IRA available available at the business, yet we never received a summary description or annual election notice. Are we still eligible to maximally contribute to the SIMPLE-IRA for the 2018 year (or does it depend on the plan document's enrollment period)? Apparently, the election period for 2019 should be coming up soon, but again we have not received any notification for this year or last year.

2) Now I'm curious if we should seek to remedy her classification to either a W2 or 1099? She is contractually defined as a "limited member" of the LLC, but again is treated by the employer more like a W2 with specific expectations.

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