Fund a SOLO401K / SDIRA with full time job contributions?

Question

Hi BP,

So I can't find much info on this but is there anyway to use my employee contributions from my normal full time w2 job to fund a SOLO 401k or SD IRA under my REI LLC umbrella?

If not by funding directly, can I roll over my 401k or ROTH IRA from my full time job into a self directed account? Or do the funds have to be from my LLC income only?

Thanks guys!

Brian Eastman · Answer

@Ricky Rigsbee

You may not use income from a current employer to fund your own 401k.  That would need to be funded from your own business and earned income (not investment earnings) created via your business.

Similarly, you may not tap the higher contribution limits of an employer 401k and shift that to an IRA.

And, so long as you continue to be employed with the plan sponsor, you most likely cannot rollover funds from that 401(k) to an outside IRA of your choosing.

You can setup and fund an IRA separately and in addition to having a 401k with your employer.  In some cases, however, you may be phased out of taking a deduction for contributions to a tax-deferred IRA or the ability to make contributions at all to a Roth IRA dependent on income thresholds.

Best to have a conversation with your licensed tax advisor that would be specific to your situation and goals.

Justin Windham · Answer

@Daniel Dietz

When I say a Roth IRA cannot be transferred to other account types, I am referring to the restriction that it cannot be transferred to anything other than another Roth IRA. You point out a good opportunity for clarification: a Roth IRA can be transferred to a self-directed Roth IRA, but not a Solo 401k, even if that Solo 401k allows for a Roth component. It's an unfortunate restriction, in my opinion.

Daniel Dietz · Answer

@Justin Windham  ROTH can be rolled to a SDIRA/ROTH, can't it? But NOT to any kind of SOLO401K?

Dan Dietz

Ricky R. · Answer

Wow fellas. Lol where else can you get advice like this! All of you are awesome, thank you! Carl, could you expound on exactly what I would need to ask the administrator/advisor for our company or look up in my plan details? I assume you mean something other than borrowing from it? Again, thank all you guys for the insight.

Maybe not being able to rollover/use until I leave the company is a good thing. That way when that glorious day comes in my REI career that my passive outweighs my W-2, when I'm walking out that door flipping double tall man's, I'll have a hefty chunk of self directed funds to invest with.. 😂

Justin Windham · Answer

@Ricky Rigsbee

Contributions to a Solo 401k must come from income earned from the plan's adopting employer (your business) and not your W2 job. That said, you could transfer the employer 401k assets to a Solo 401k once you leave the employer. If the employer's plan allows for in-service distributions, you may have a little more flexibility, but most 401k plans disallow this.

Keep in mind, a Roth IRA cannot be transferred to other account types.

Daniel Dietz · Answer

@Ricky Rigsbee I have both SDIRA and SOLO401K.

My understanding is that you can 'roll' as much as you want, with the exception of a CURRENT employers 401K where *they* probably (like 99%) wont let you. But any 401Ks from old employers, IRAs etc... you can. That is how I and my partners funded 95% of ours.

As far as current income, the SDIRA I think has the same limits as *non* self directed. With the SOLO401 you must be self employed. Let's say in very rough numbers you make 5K in self employment income, and 50K of W2 income.... you can only put the 'self employment income' into the SOLO401K. Now if you want 50K of self employment income, you could make a lot more contributions depending on a lot of factors. I will let the pros chime in on that.

Dan Dietz

Ricky R. · Answer

Closest think I have currently is one REIT to choose from so Im at least in the game!

Carl Fischer · Answer

@Ricky Rigsbee

A lot of good advice on this thread. . One option, not mentioned, is You may be able to self direct out of your existing company 401k. If they don’t let you they may be liable for any losses you sustain in your 401k. It is a simple option to add to a 401k plan.

Ashish Acharya · Answer

Already mentioned up here, but breaking down into points:

1) 401k/qualified profit sharing can only be established by an employer or self-employed person. So there is a possibility of establishing the plan via your LLC if your LLC flips houses. If your real estate investment activity is just rentals, you cannot fund the plan. Thus, if you have rentals and you really want to fund retirement plans with rental cash flow, you have to convert passive income into income that is subject to Self Employment taxes. Maybe start paying yourself a management fee by creating a property management company. You will be subject to SE taxed if you do so, but then you can fund retirement.  A detailed analysis of if this is beneficial to you is needed.

2) You can always fund IRA with your W-2 income if you have enough after you max out 401k at your employer.  Since you are active participants in your employer plan, there is a limitation on deductibility for tax (you can always contribute to IRA, but tax deductibility is dependent on your AGI if you are an active participant). If you are above the threshold for deductibility, it's better to fund ROTH IRA (it has its own limitations).

Its best to talk to professional who can guide you.

Fund a SOLO401K / SDIRA with full time job contributions?

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