In this video, tax lawyer Mark Kohler and his partner Matt Sorenson explain why many real‑estate investors who own rental properties cannot directly establish a Solo 401(k) – the IRS requires self‑employment income, which rental income does not provide. They introduce a "backdoor" solution: create a separate management company (LLC or S‑corporation) that contracts with the rental‑property LLC to provide management services. The management company pays the investor a W‑2 salary, generating self‑employment income that qualifies for a Solo 401(k). They discuss entity‑type considerations (avoiding unnecessary C‑corp structures, preferring simple LLC or S‑corp), the flow of management fees, and the steps needed to set up and maintain the plan. The video ends with calls to view related tutorials on contribution limits, plan maintenance, and to subscribe to their channel and newsletter for further tax‑saving strategies.
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Mark Kohler here, a tax lawyer specializing in small business tax strategies here with my amazing law partner Matt Sorenson.
Yeah. And today we're gonna be talking about the backdoor solo 401K.
Yeah, we've coined this phrase.
This is a big deal. We've got a cool strategy I think you're gonna love. What's the problem? Why are we talking about this?
The problem is there's a lot of real estate investors out there who have rental properties that want to do a solo 401k but they're not technically self employed for solo 401k rules. What does that mean? That means they cannot directly establish the Solo 401k as a rental property owner or in their LLC that owns rental property. But we have a solution and I've been drawn.
Look at this just happening while you're talking. I love this. If you've watched some of our videos or been to our workshops, we like to divide clients lives into two sides. We've got assets over here, operations over here. Well, to have this 401k solo 401k which we love for our small business owners, you've got to have an operational business to fund it. So if you're over here and you're like, well I don't have a business, I have a day job. But I'm investing in all these rentals and I've got my little LLC over here and man, I'm out there rocking with rental income. I can't get to a 401k with rental income.
Yeah, it's a bum deal. Really. It's a bum deal. But there's a way.
There's a way, there's a way. There's the backdoor strategy. Set up this sister company as a management company to manage your rental properties.
Now we would never do this.
This, this is a bad deal. And there's some companies out there we don't appreciate the sly strategy which we think is almost a scam to make this a C corp and heaven forbid in Nevada. Doesn't need to be that crazy. It can be a simple LLC or S corporation. We're going to help you decide which entity is best. But it's a management company for your own rentals which you would never do because it doesn't make tax sense unless
you want to do a solo K. Yep. So you got the rental income over here, you're going to pay income over there to your, that management fee income. Now I've got operational business ordinary income. Now I'm self employed now I can create a solo 401k.
And the trick here is you can't take a W2 from your own LLC. You are a passive manager of your LLC in creating tax losses and all the beauties that come with rental real estate. But if you do want to fund a 401k or rollover old IRA or old 401k money, you need this structure. And to get this structure, that W2 has to be a part of the equation.
Problem solved.
Problem solved. The backdoor 401k. Anything you want to add my dear friend?
Well of course. Make sure you check out all the other videos on how you contribute to the Solo 401k, how to properly maintain it, how to set it up properly. There's so much more to learn. But for those of you stuck, you got rental properties. You wanted to self direct. You've heard about the solo K, you wanted to get it. Someone told you you couldn't consider this as an option.
See you around.
Thanks so much for watching that video and I want to be your source for tax and legal strategies. It's hard enough to live the American dream without being out on the web on Google trying to find answers to complex questions and just clicking a mouse hoping you got it right. My team and I want to be a huge resource to you at the law firm, accounting firm, my education resources on my site. Please continue to follow these strategies. I know they'll save you thousands. Now click here if you want to be a part of my newsletter. It's awesome. Weekly updates and deadlines and strategies and tips. Also subscribe to my YouTube channel. You'll love it. And make sure to click the bell icon so you get a little ping whenever there's a new video. And finally, check out my site marjoler.com with all sorts of videos, probably 70 plus videos, 30 plus hours of content
