What is “earned income” that does NOT qualify as “self-employment” income for Self-Directed Solo K?

For purposes of qualifying to adopt and contribute to a Self-Directed Solo 401(k), you must have earned income from self-employment. But what does that mean?

In general, the term “earned income” refers to an individual’s net earnings from self-employment activities generated through a trade or business as a sole proprietor, 1099 independent contractor, LLC, partnership, or corporation. Furthermore, the earned income must arise from the individual’s personal services and the personal services must be of a material income-producing component.

The following income is not considered self-employment income, so it does not qualify as income that is eligible to adopt, or be contributed to, a Self-Directed Solo 401(k) plan:

  • Earnings and gain from any type of investment or property, such as rental income, interest, or dividends

  • Income from a partnership for which you do not provide any services that are of a material income-producing component

  • Pass-through income earned from being a shareholder of an S-corporation

  • Retirement income, such as Social Security benefits, pension payments, or annuity income

  • Alimony or child support

  • Deferred compensation

  • Unemployment benefits

  • Income received through disability income payments

  • Income received through worker’s compensation payments

  • Pay received for work performed while an inmate in a penal institution

  • Income for which you received a Form W-2

For more information regarding the eligibility requirements to adopt and participate in this kind of plan, click here.

For more information about the difference between W-2 and 1099 income, click here.

48 views0 comments



Nashional Self-Directed does not offer tax, accounting, legal or investment advice. Please consult with the appropriately licensed or certified processional if these services are needed.

The content provided on this website is for informational purposes only. Pricing is subject to change at any time.