All Forum Posts by: Zach P.

@Zach P.

Although creating legitimate self employment activity can be pretty simple, it must be legitimate. With the Solo 401k, you are creating a qualified retirement plan for your business or self-employment activity. That activity must continue for the plan to continue. It is ok that your main motivation is to get control of your existing retirement funds via a Solo 401k, but you don't want to skip over the legitimate part. If you do consulting, have some sales or other activity that generates a 1099, mow lawns on the side, etc, you might qualify.

Also, some investors that own real estate do a fair bit of management, repairs, renovations, etc to their properties and this can generate some earned income that would be on schedule C instead of schedule E. Flipping houses is a good example. I'd recommend speaking with a qualified tax advisor about the possibility of having at least a small portion of your income be treated as earned income if it's commensurate with the amount of active involvement you have in your business.

Zach, welcome to BP!

Self-directed Solo 401k plan can be great investment and tax-sheltering vehicle if you qualify for it. As you can see in my earlier comment (above) you need to has some self-employment activity or own a small business with out any full time employees (over 1000/year), not including you and your spouse. 

From the limited info you provided it does not look that you qualify for a Solo 401K at this time. Rental properties that you own are considered investments, not a business. And the rental income you receive from them is considered to be 'passive' and can't be contributed to the retirement plan (you need earned income in order to make contributions). And example of 'earned' income is doing some consulting work and receiving a fee as a result of that or flipping a property.

Your wife can contribute to the 401k at work (if she has one there), but she can't use her W2 income and contribute that to a Solo 401k.

Assuming that you and your wife generate enough income from self-employment (again, this has to be earned income, not passive) if you for example start flipping properties and do well - then yes you could potentially maximize your 401k contributions and shelter up to $106,000 of your income from taxes.

Your parents are considered to be a 'disqualified persons' - therefore your 401k is prohibited from engaging in any business transaction with your parents. Learn more about that in this blog post:

https://www.biggerpockets.com/blogs/2810/47960-dis...

If you personally set up an LLC (or any other business structure) - you can employ your parents. As long as there is no transactions between the 401k plan and disqualified person - you are OK.

Hope this helps!

@Zach P.

I am confused by your question.  Why do you say you can only "write off" your rental income down to zero?  There is a net passive loss allowance for residential rental property that let's you take a deduction for up to $25K in losses from your rental activity subject to income caps

.Are you saying that you don't have any other income and can't use the net passive loss allowance?  Perhaps if you give an example with numbers, your question will be clearer.

 Property A and B net against each other, so your taxable income is $2000.

I have another question on this. Lets say property A was $5000 positive at the end of the year after all deductions and property B was $3000 in the negative. 

If you only qualify to write off down to 0, is your taxable income $5000 or can you combine properties together so your taxable income is only $2000?

Thanks!