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Can an investor with a real estate investment LLC but no "earned" income establish a solo 401(k)? The 401(k) would receive rollovers to be invested, but no contributions unless there is future earned income. Is establishing and rolling into a 401(k) allowed, even if contributions aren't?

Posted

A business (sole prop, partnership, corp, etc.) must be the sponsor of a qualified plan such as a 401(k) Plan.

If the plan never has contributions other than the initial rollover, the IRS could challenge the position that the plan was intended to be a permanent retirement plan from it's onset.

Now if they are expecting earned income in the future to make contributions to the plan and are establishing the plan now to accept rollovers with the expectation of future contributions, keep good business notes to show the plan was intended to have contributions because plan permanency is a facts and circumstances gray area sometimes.

But if they are just expecting passive income going forward, then this probably won't pass the smell test.

 

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