Real Estate Professional

[amcorson]

In recently was asked the following what if scenario:

Doctor owns a corporation and has a current profit sharing plan with one other employee. Doctor also owns real estate in a living trust, has his real estate license and manages the properties. Cash flow from properties is $150-200 k annually.

Generally real estate income is not considered earned income and therefore no contributions to a qualified plan are allowed.

Can a plan be set up as a sole propreitor to shelter some of the real estate income?

I know there are a number of issues here, but the two I am having trouble with are: the real estate being held in a trust (but income and taxes go to individual), and the earned income issue.

Any insights would be appreciated. Thanks.

[mphs77]

In recently was asked the following what if scenario:

Doctor owns a corporation and has a current profit sharing plan with one other employee. Doctor also owns real estate in a living trust, has his real estate license and manages the properties. Cash flow from properties is $150-200 k annually.

Generally real estate income is not considered earned income and therefore no contributions to a qualified plan are allowed.

Can a plan be set up as a sole propreitor to shelter some of the real estate income?

I know there are a number of issues here, but the two I am having trouble with are: the real estate being held in a trust (but income and taxes go to individual), and the earned income issue.

Any insights would be appreciated. Thanks.

Wouldn't the money coming from the properties be considered "passive income" and thus not eligible for Plan use?

[K2retire]

Income from real estate held in a trust seems like it would be considered trust income, not earned income. But you also mentioned a real estate license and managing property. That income seems like it would be personal services related and possibly self employment income that could go to a plan. Professional property managers are often not the owners of the real estate, so the trust might not matter.

[jpod]

Presumably the living trust is a grantor trust which is ignored for Federal tax purposes, so that in itself should not be an obstacle. As to the issue of whether any of the income is eligible for retirement plan contributons, isn't there some kind of "active participation" standard which, if satisfied, would convert the income from ineligible to eligible?