One question I have is whether income from an LLC is eligible for me to use toward this solo 401k. The LLC is currently (2020) taxed as a partnership. There are 4 general partners. All my income comes through a K1. Next year (2021), the LLC will be taxed as an S corp where some of my income will come through a W2 and some through a K1. Can any of this income in either 2020 or 2021 be contributed to a solo 401k that I have that the other partners don’t have?
ANSWER:
The solo 401k plan would be sponsored by the LLC. The owners/partners of the owner-only business can choose to participate in the solo 401k plan but are not required to do so. Also, just one, some or all of the partners in the business can choose to contribute to the solo 401k plan even if the others do not contribute to the plan.
Contributions to the solo 401k plan are based on earned income generated through the self-employed business. If the LLC is taxed as a partnership, and you decide to contribute to the solo 401k plan, the solo 401k contribution (both the employee and employer) will be based on the figure listed in line 14 Code A of your Schedule K-1. On the other hand, if the LLC is taxed as an S-corp., the solo 401k contributions will be based on the figure listed in box 1 of Form W-2.