While having multiple solo 401k plans for your owner-only self-employed business including those where you have a controlling ownership is technically not disallowed, it is not only unconventional but a good way to invite an unnecessary IRS plan audit.
Reasons why having multiple solo 401k plan increases the likelihood of an IRS plan audit:
Reason one: Contributions
Having multiple solo 401k plans does not equate to doubling up on the annual contribution limit which is $61,000 for 2022.
Reason two: Participant Loan
You can’t borrow more than the allowed limit from your solo 401k regardless if you have multiple solo 401k plans.
- The maximum Solo 401k loan amount is either 50% of account balance or maximum amount of $50K.
– Example 1: Solo 401k balance is $50K; 50% of $50K = $25K (the Solo 401k maximum loan amount)
– Example 2: Solo 401k balance is $150K; 50% of $150K = $75K; however, the maximum permitted Solo 401k loan amount is $50K
Reason three: Form 5500-EZ
A form 5500-ez must be filed for the plan year once the total value of all your funds in all your solo 401k plans exceeds $250,000 in value. Therefore, if you have multiple solo 401k plans, the assets of all your owner-only plans must be aggregated to determine if a Form 5500-ez applies. If you have multiple plans, a separate Form 5500-ez will need to be filed for each plan if the combined value of both plans exceeds $250,000 in value as of the end of the year.