Passive Solo 401k Investment In Private Company and Work for the Company

Solo 401k

BACKGROUND & QUESTION:

A client wants to invest in a private startup using solo 401k funds. My question is about her consulting or working with this company. What are the limitations she should be aware of?  If she invests solo 401k dollars into the company’s equity, can she not take a job with them? Can she consult with them and earn income?
She would only be a 0.3% shareholder of this company’s C-Corp if she were to invest.

ANSWER:

The IRS prohibited transaction rules identify the following as a disqualified person:
As indicated in the above IRS prohibited transaction rules in (H), you cannot be a 10% or more shareholder in business, officer, director or a highly compensated employee.
Of course, the IRS has the power to further scrutinize the investment for other factors including but  not limited to whether or not the solo 401k participant’s parents, children, self-employed business, etc. also work for the business and or own equity in the business.

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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