Can rental income be used to contribute to retirement...explained inside...

[Pixel Rogue]

As an independent contractor years back I was able to exceed traditional 401k limits w/super/megaroth. This was glorious. Since then the company which provided the solo 401k was acquired, rules changed so that now (in 2023) what companies offer this option? I'm also now a W2, not a 1099.

We have a rental that may eek out profit by the end of the year. Passive income would no qualify...(note passive income IS taxed as normal income...gets added to reportable income for that year) Do people (have you) actually set up a company to for property management , charing a fee to each property for services? My wife and I do spend a fair amount time in the management...we do everything ourselves but landscaping.

How can we take earnings and invest in a tax advantaged (ideally roth401k?) My understanding is that any taxable 'source of income" can have its own retirement options. Note the standard 401k and IRA limits will be maxed..This needs to be AFTER TAX contributions that can then convert to Roth.

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UPDATE:

The above strategy is a thing... and many open up management companies for this purpose.
Presume standard annual 401k/IRA are maxed. Husband and wife are both W2. 5k earned that year in rental income for discussion.
Thoughts on the below plan?

• Establish company specifically for rental management.
• Over the course of the year new company will be paid $5k for services from rental income.
• Schedule C shows $5k (and payments are shown as expense on rental side.)
• 15.9% of $5k paid for Self Employment (apx. $800.00)
(note this would be less than ordinary income paid otherwise, plus 50% of SE tax is a deduction.)
• $4,200 contributed to solo traditional 401, then converted to Roth.

What other considerations are missing?
How about IRA requirements, for instance to be a real estate professional you need to document x# of hours (which is nearly impossible to do w/a W2 job.) Contribution limits (presuming max is the number around 60k, and this wouldn't be close.) Are checks/receipts/proof of payments needed or would transfers be ok? I would likely open a dedicated bank account to receive payment from rental income, then contribute to solo 401k from this account.

Contribution Rules?
Since this would only ever be from the 'Employer' side for foreseeable future, would the contribution to the employee be limited to 25% (5k - expenses -50% self employment tax,) or ok to use net? How would contribution limits work?

Thank you for any insight...