Invest husband and wife Solo 401k and make contributions

I did not pay my wife any salary this past year.  I paid myself a salary and put into the self-directed solo 401k plan roth. I invested part of the solo 401k funds in a private company.
QUESTION:  When I get paid a return from the private company that mys solo 401k invested in, can I say 50% of profit is for my wife, since she is in the business, or did I have to pay something to her in salary and withhold an amount for the roth acct and then give her part of the profit?

Thanks, Jason E. located in Washington

ANSWER: If your wife did not fund her solo 401k sub-account (i.e., make a contribution or rollover any funds from previous retirement accounts into the solo 401k), then obviously she did not have any funds in her solo 401k to invest in the private company; therefore, her solo 401k sub-account may not share in your solo 401k sub-accounts profits generated from the private company investment or any other investment for that matter.

Since a solo 401k is for both business partners or both spouses, then if your spouse is a participant in the solo 401k plan and thus invested her solo 401k funds in the private company, then yes profits from the private company would flow back to her solo 401k sub-account based on her solo 401k sub-account’s percentage of ownership in the private company.

Note that the solo 401k participant is not required to make a solo 401k contribution every year and may not make a contribution in years that he or she does not generate self-employment income from the business that sponsors the solo 401k.

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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