Multi-member LLC Self-Directed 401k

BACKGOUND:  I am looking to open a self-directed 401k. I have just set up a Multi-member LLC in Maryland. The members are my wife (96% ownership), her sister (2% owner) and me (2% owner).

  1. I am also the LLC manager.
  2. My wife, a real estate agent, will also be employed in the LLC.
  3. Her sister is only a passive investor in the LLC and will not be employed in the LLC.

I plan to rollover funds from my rollover IRA (at ETrade) to the self-directed 401k. Funds from that self-directed 401k

–       will be lent to other rehabbers and invested in stocks.

–       will NOT be lent to me, my LLC, or any other disqualified persons.

The LLC will primarily earn interest income from lending money to real estate rehabbers (including myself). The LLC is likely to earn minor amounts of income rehabbing and selling properties.

At year-end the LLC members will get a schedule-K.

QUESTIONS & ANSWERS

  1. Does your company open self-directed 401k for this type of MMLLC? Yes our solo 401k plan may be opened by self-employed individuals under an LLC entity type.
  2. Does your 401k plan document have a loan provision? Yes our solo 401k plan allows for solo 401k participant loans.
  3. Does your plan allow Roth sub-accounts? Yes our solo 401k plan documents allow for Roth solo 401k designated accounts (one for each solo 401k participant).
  4. Can the Roth subaccount have a loan provision? Yes solo 401k loans can be processed from the Roth solo 401k funds.
  5. Given that interest income is unearned income, is it necessary to also have some “earned income” to contribute towards 401k? IMPORTANT: Not only is earned income required in only to contribute to a solo 401k plan, in order to open and continue to operate a solo 401k plan the business (in your case the LLC) must be one in which its owners perform services that lead to earned income. Note that as detailed in IRS publication 560 passive income may not be used in order to open or to contribute to a solo 401k plan.
  6. Is it possible for my wife and my sister-in-law to also contribute to have their own 401k accounts since they are also LLC members? In addition to having to satisfy the earned income requirement to set up a solo 401k plan, both spouses can participate in a solo 401k, provided they are actively performing services for the LLC. Passive investors may not contribute to solo 401k plan. If the LLC has employees (other than both spouses) that work full-time for the business, a solo 401k may not be opened. Instead, a traditional 401k (one for companies with full-time employees) may be opened.
  7. What are your initial setup fees? Please click here to view our solo 401k fees.
  8. What are your ongoing fees? Please view our pricing page.
  9. Are there any per-transaction fees or asset-value based fees? No as we don’t process your Solo 401k investment transactions.
  10. Can my wife be the trustee for the self-directed 401k? Yes and both spouses can also serve as trustees of the solo 401k.
  11. Can I be a successor-trustee in case my wife cannot be a trustee in future?  You can be co-trustee of the solo 401k plan.
  12. Can I pay your fees from the 401k funds? Yes or with personal funds since it falls under a solo 401k administrative expense.
  13. How do I transfer funds from my ETrade rollover-IRA to the self-directed 401k? We assist you in filling-out ETrade’s IRA transfer-out forms to ensure the funds are correctly transferred to the new self-directed 401k.
  14. Do I need to setup a company 401k custodial account to hold plan assets? What would that cost? You need to setup a bank account (solo 401k bank account) to hold the solo 401k funds. Banks usually don’t charge a fee for this.
  15. Since my wife and I will be the only employees in the company, do we have to get ERIA bonding? ERISA bonding does not apply to 401k plans for self-employed.
  16. Can we file 5500-EZ? Or should we file 5500? Form 5500EZ applies to a solo 401k plan.

Aria in Maryland

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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