Has anyone here actually dealt with a Solo 401k before?
Yes. But I have employees now, so converted to regular 401(k).
My understanding is that Solo 401k plans let you make contributions as both the employer and the employee, so there's probably some benefit to it in addition to the rollover.
Yes. You can contribute $18k like normal. You can also company match (tax deductible expense) and the company can make profit sharing contributions. The total amount is $53k.
I'm assuming the contribution limits on the Solo 401k are somehow restricted by your business's taxable income?
No. You can operate at a loss (but I don't recommend it). Pay yourself a $20,754 salary (15.3% FICA tax on top of the $18k), and company match 100%. That's $38,754 of deductible expenses on $0 income. Though of course, you need to have some cash from somewhere to support the burn. And the IRS won't like routine losses (you can get away with losses 2 out of the first 3 years of business). While you're at it, may as well have the company pay your health care premiums and contribute to your HSA. Maybe provide a company car, disability, life, and some other benefits. There are lots of ways to lose money.
In a perfect world, the sole proprietorship you set up could be the holding company for your rental property/properties. That has always seemed to me like the ideal arrangement, because gross rents would accrue to the business instead of you to you and you could then pay yourself a wage (including FICA taxes) to generate some small amount oftaxable income in retirement, which confers all kinds of tax breaks not available to people who are totally retired and not working. Or better yet, figure out how to make sole proprietorship issue dividends instead of earned income for the 0% tax rate.
Sole proprietorships (and partnerships and SCorps) are pass through entities. You cannot retain earnings or magically convert ordinary income into capital gains. In order to issue dividends you'll need a C Corp, which will be subject to double taxation (the corp pays income taxes, then pays out dividends
after tax, so the effective rate is higher than pass through).
Structuring real estate where gross rents accrue requires a c corp: double taxation, plus treatment of capital gains (when you sell that piece of property) as ordinary income. Ugh. If you look at the structure of REITs or the typical RE JV, they are pass through entities.
And a legitimate business can absolutely pay a wage to owner-employees. You just need to make sure it's reasonable...the IRS likes to chase after owners who pay low wages to avoid FICA taxes while collecting excess as distributions. Also, if you're collecting a wage, you have not terminated employment with the 401k sponsor, so couldn't the whole distribution @55 doesn't quite work.