Self-Directed 401k Self-Employment Income

QUESTION 1: What would constitutes valid self-employment for purpose of opening a self-directed 401k? Do you happen to have any links to pertinent policy?

I could form an LLC easily enough, and begin dabbling part time before actually quitting my salaried job.

ANSWER: To open a self-directed 401k (also known as a solo 401k) for the self-employed, the IRS rules call for the presence or part-time or full-time self-employment activity. Further, income generated from passive investments does not qualify as earned income. Please click here to read our blog surrounding self-employment income.

QUESTION 2: One last question: Can an LLC be formed under the umbrella of the self-directed 401k and operated as a business? I think I have seen similar arrangements discussed online, usually in regard to Self-directed IRA’s.

ANSWER: Good question. No because the solo 401k generally cannot invest in a business including an LLC that you are or will operate. Instead, the self-employed business is what qualifies one to open a solo 401k. The business is the one that sponsors the solo 401k and earned income generated from the business is what affords the self-employed individual to make solo 401k contributions.

You are referring to the self-directed IRA LLC which is commonly used in conjunction with a self-directed IRA to invest in alternative investments like real estate.  Under this arrangement, the IRA participant rolls over his or her IRA to a self-directed IRA held by a self-directed IRA custodian such as IRA Services Trust Company out of San Carlos, CA, and where I worked as a Compliance Manager.  Subsequently, an LLC is formed containing specific IRA language and the self-directed IRA invests in the LLC (hence why it is commonly referred to as a self-directed IRA LLC).  Finally, the IRA participant is the manager of the LLC and directs the investments into real estate, for example, by writing checks from the IRA LLC bank account. We also offer the Self-Directed IRA LLC and charge a one-time $500 facilitation fee. Click here to learn more about our IRA LLC services.

Megan in AZ

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>


  • Popular Video

  • ROBS 401k Funding Process

  • Solo 401k Contributions Including Mega

  • Checkbook IRA LLC

  • About MySolo401k

    We help our clients take control of their retirement money. Our products and services provide our clients the freedom to invest their retirement savings in their own business as well as alternative investments such as real estate, private companies, promissory notes, precious metals, tax liens and equities.
    Learn more

    Connect with us

  • We’re here to help.

    Call: 800-489-7571


    8:00 am - 4:00 pm PT

    Why us?