Can I use Schedule E income to open a solo 401k plan?

QUESTION: We spoke briefly yesterday regarding Solo 401k options and I had one follow up question.  After reviewing my 2012 tax return, I realized that most of our rental property income is reported on a Schedule E.  Based on our conversation yesterday, I'm assuming that this means the income is not eligible as "earned income".  Is there any other way to get Schedule E income into a Solo 401k or other retirement plan?

ANSWER:  Good question. Unfortunately, Schedule E income does not qualify for opening/participating in a solo 401k plan or any other type or retirement plan for the self-employed. Reason being, schedule E income is considered passive instead of earned income. See IRS Publication 560 for more information on earned income, but a good way to understand the difference is that earned income is generated from actual work done, whereas Schedule E income falls under investment gains/passive income.  

Thanks,

Gerry in Florida