QUESTION:
I want to create a self-employed single member LLC for my sole proprietorship that sponsors my self-directed solo 401k, for liability protection. The income from the LLC will be reported on Schedule C just the same as income received prior to the formation of the LLC. What changes need to be made in the solo 401k plan document and procedures, if any?
ANSWER:
If your self-employed business entity type changes from a sole proprietorship to an LLC or an S-corporation, for example, the solo 401k plan documents will need to be amended to reflect the new plan sponsor. Of course, the eligibility requirements that apply for solo 401k participation is still required. These requirements include still performing material services (aka self-employment activity), not employing full-time W-2 employees (defined as working 1,000 ours or more during the year) in any business under your control, and not employing W-2 employee who have worked 500 but less than 999 hours for three consecutive years (The three year part-time rule found in the SECURE Act). Note: Starting in 2025, the SECURE 2.0 Act reduces the three year consecutive requirement to two years of 500 hours.
