solo 401(k) for business with no income to roll pre tax IRA?
I know that you can roll pre tax IRA amounts into a 401(k) if the plan so allows. The after tax can remain in the IRA then be rolled tax free into a Roth. What if the business had no income? My client has a textile business that generated revenue but the expenses are higher. She does not depend on this for support. This has been the case for many years … no net income.
Would the IRS question the validity of establishing a 401(k), particularly when our goal is to separate the after tax IRA assets from the pre tax?
Thanks as always … Mary Dean
Permalink Submitted by Alan - IRA critic on Tue, 2013-06-18 23:44
It’s a good question with no clear answer. I have not heard of reports where the IRS disallowed the plan under these circumstances, but it is certainly possible if it’s clear that the sole purpose of the plan was to isolate IRA basis to allow a tax free conversion and the participant never makes deferrals to the plan. This strategy is being done quite frequently now, and if this continues it may provoke the IRS to make a ruling disallowing these rollovers. No sign of any resistance yet however.