Solo 401k With multiple "Businesses"

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Topic Author
sco
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Joined: Thu Sep 24, 2015 2:28 pm

Solo 401k With multiple "Businesses"

Post by sco » Tue Nov 05, 2019 10:03 am

I have done a lot of reading on the Solo 401k here and elsewhere, I think I have the basics down. Still a few questions though, and I hope someone can point me in the right direction.

1. When funding the Employers portion, how do you account for multiple businesses for the one person? For example
A. Sole Propriatorship has income (net profit)
B. K1 from LLC (Not Taxes as a corporation) that has a net loss.

Can you make an Employers contribution based upon A? Or do you have to add A & B together and see if there is net income?

Can someone point me to an example or a form that would apply to this situation?


2. Also, when opening a Solo 401k. Which business (A or B) would a person refer too, or would both somehow have to be added?
3. Is there any impact to Spouse contributions?

Topic Author
sco
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Joined: Thu Sep 24, 2015 2:28 pm

Re: Solo 401k With multiple "Businesses"

Post by sco » Wed Nov 06, 2019 11:07 am

Crickets?

megabad
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Re: Solo 401k With multiple "Businesses"

Post by megabad » Wed Nov 06, 2019 1:29 pm

Generally, businesses that are related and/or affiliated would face an aggregated maximum limit (generally 56,000 for 2019). I am not sure of your details so beyond this, the exact limit (if less than the maximum) is hard to determine. Not exactly sure what "net loss" means and the exact definition matters. If you truly don't have eligible earnings from Employer B than I would think it would be simplest to just set one up for A and not worry about B but I am not an accounting expert. I do know that 401ks are company based and so, I can't imagine it would be possible to attach two companies to the same 401k nor would it make sense to do so. Generally, how to calculate the limits is on the IRS site here:

https://www.irs.gov/retirement-plans/on ... 401k-plans

Topic Author
sco
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Joined: Thu Sep 24, 2015 2:28 pm

Re: Solo 401k With multiple "Businesses"

Post by sco » Wed Nov 06, 2019 5:30 pm

I understand the 56k limits, this question is really more about how to calculate the employers portion. In this case with a sole proprietorship and a K1 from an LLC involved..

Are they separate, or just lumped together?

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

Re: Solo 401k With multiple "Businesses"

Post by Spirit Rider » Wed Nov 06, 2019 5:59 pm

sco wrote:
Tue Nov 05, 2019 10:03 am
I have done a lot of reading on the Solo 401k here and elsewhere, I think I have the basics down. Still a few questions though, and I hope someone can point me in the right direction.

1. When funding the Employers portion, how do you account for multiple businesses for the one person? For example
A. Sole Propriatorship has income (net profit)
B. K1 from LLC (Not Taxes as a corporation) that has a net loss.

Can you make an Employers contribution based upon A? Or do you have to add A & B together and see if there is net income?

Can someone point me to an example or a form that would apply to this situation?
I am assuming B. from above is a disregarded multi-member LLC taxed as a partnership. The partnership must adopt any 401k plan and any contributions based on partnership income must be made to that plan. None of that income can be the basis for contributions to another one-participant 401k plan. Not to mention depending on the facts and circumstances, the sole proprietorship and partnership may be considered part of a controlled or affiliated service group.

26 CFR § 1.401-10 - Definitions relating to plans covering self-employed individuals, (e) Definition of employer, (1)
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.


For purposes of explanation if B. above were also a sole proprietorship, then the net self-employed earned income (business profit - SE tax) of the two businesses combined would be the basis for ine-participant 401k contributions. I can't remember the reference for this, but I am almost certain it is true.
2. Also, when opening a Solo 401k. Which business (A or B) would a person refer too, or would both somehow have to be added?
Assuming you had two single owner (whether individually or by spousal family attribution) businesses, it would depend on the one-participant 401k plan provider. E-Trade, Schwab, TD Ameritrade and Vanguard all have language in their respective adoption agreements that automatically apply the plan to all controlled and affiliated service groups. Fidelity allows you to explicitly add affiliated employers.
3. Is there any impact to Spouse contributions?
A spouse can only make contributions if they are a materially participating owner or employee and those contributions can only be based on their share or self-employed income or W-2 wages.

Topic Author
sco
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Joined: Thu Sep 24, 2015 2:28 pm

Re: Solo 401k With multiple "Businesses"

Post by sco » Wed Nov 06, 2019 9:03 pm

A is a sole proprietorship, nothing special there.

B. is a LLC Partnership without Corp tax treatment, the two partners are Husband and Wife.

This is what make it a little more complicated, B issues K-1's to Husband and Spouse.

Trying to figure out if it makes sense to have a Solo 401k, and if so.. Is it one or two? And if the businesses are separate for Employer contribution calculation purposes.

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

Re: Solo 401k With multiple "Businesses"

Post by Spirit Rider » Thu Nov 07, 2019 12:15 am

The partnership and the sole proprietorship are considered a controlled group. You should only have a single one-participant 401k plan with two employee accounts under that plan. One for you and one for your spouse.

However, the partnership can only base employee and employer contributions based on the self-employed earned income of each partner who "materially participates". That will be their share of the partnership business profits - 1/2 SE taxes.

Employee deferrals and employer contributions must be deposited by the partnership from partnership accounts. This means that if there is no self-employed earned income for either you or your spouse. Neither of you can make any employee contributions or receive any employer contributions from the partnership.

You can make employee contributions and receive employer contributions based on your self-employed earned income from the sole proprietorship. Your spouse can not. If you adopt a one-participant 401k at E-Trade, Schwab, TD Ameritrade or Vanguard. The partnership and sole proprietorship will both be supported. If you adopt a one-participant 401k at Fidelity you will name one primary employer and add the other one as an affiliated employer.

As pointed out, you and your spouse are individually subject to the employee deferral limit ($19K) and the annual addition limit ($56K) for both businesses combined.

Topic Author
sco
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Joined: Thu Sep 24, 2015 2:28 pm

Re: Solo 401k With multiple "Businesses"

Post by sco » Thu Nov 07, 2019 4:12 pm

Spirit Rider wrote:
Thu Nov 07, 2019 12:15 am
The partnership and the sole proprietorship are considered a controlled group. You should only have a single one-participant 401k plan with two employee accounts under that plan. One for you and one for your spouse.

However, the partnership can only base employee and employer contributions based on the self-employed earned income of each partner who "materially participates". That will be their share of the partnership business profits - 1/2 SE taxes.

Employee deferrals and employer contributions must be deposited by the partnership from partnership accounts. This means that if there is no self-employed earned income for either you or your spouse. Neither of you can make any employee contributions or receive any employer contributions from the partnership.

You can make employee contributions and receive employer contributions based on your self-employed earned income from the sole proprietorship. Your spouse can not. If you adopt a one-participant 401k at E-Trade, Schwab, TD Ameritrade or Vanguard. The partnership and sole proprietorship will both be supported. If you adopt a one-participant 401k at Fidelity you will name one primary employer and add the other one as an affiliated employer.

As pointed out, you and your spouse are individually subject to the employee deferral limit ($19K) and the annual addition limit ($56K) for both businesses combined.

Thanks for this info, it helps...

So the LLC K-1 Income (or loss) and employer contribution is separate from calculating the employer contribution from the sole proprietorship?

Can I take a large K1 loss this year, (no employee or employer contributions)... But still make Sole Proprietorship Employer contributions?

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