Yes, a self-directed solo 401k (aka owner-only 401k, Individual 401k, Solo K, Unit, Single K, etc.) is a retirement trust and as a result must have a written document that has been approved by the IRS. Treas. Reg. 1.401-1 (a) (2)
The 401k plan documents are required to list all the provisions that apply to the solo 41k. Provisions such as the ability to invest in alternative investments, process 401k participant loans, process conversions, ability to make contributions and types, etc. Re. Rul 74-466, 1974-22 C.B. 131
In sum the solo 401k plan written documents (e.g., Adoption Agreement, Trust Agreement and Basic Plan document, etc.) is used to define the rights of the owner-only employees/participants, their beneficiaries as well as the obligations of the plan’s trustees. Lastly, the employer has to sponsor the solo 401k (i.e., the 401k plan is set up for the self-employed business) for the benefit of the self-employed individuals.
Adoption Agreement FAQs:
QUESTION:
Item 7. Service Requirement for Plan Participation. Currently, “Option b. Completion of one Year of Eligibility Service” is selected, but I would like it to be “Option a. No Minimum Service.” Can this be updated to “Option a,” or is it required per IRS guidelines to be “Option b”?
RESPONSE:
This provision does not apply to you or your spouse but instead and in the event that your self-employed business hired w-2 employee(s). Ultimately, it does protect you in that it allows the solo 401k to be maintained even you hire w-2 employees provided that su
