What is “earned income” that does NOT qualify as “self-employment” income for Self-Directed Solo K?
Updated: Apr 23, 2021
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
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