QUESTION: I am setting up a one manager LLC
in CA with my wife as 1% owner. I plan to invest in real estate through
tax liens and deeds. I was not planning on paying myself any salary, just
taking the net income each year. Can I set up a Solo 401k?
ANSWER: Keep in mind that in order to open a solo 401k you must be
self-employed, whether part-time or full-time; therefore, earned income is
necessary.
No every member of a LLC may have
earned income. For example, a LLC member who does not provide services to the
LLC is merely an investor; therefore, he or she would not qualify for a solo 401k.
What’s more, a LLC member’s income
from the LLC may not be earned income (for example, investment income that is
passed through the LLC to the members).
In short, to qualify as earned income the LLC member must be performing
services that help produce earned income.
Thanks,
D. T. in CA
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