Self-Directed Solo 401k for brother and sister

Since my brother also helps out in my business, I have the following questions,

1.QUESTION: If I like to include my brother in my solo 401K, do we need to set up as partnership?

ANSWER: Yes and S-Corp or a Partnership will be the best entity type since your brother is also an employee.
2. QUESTION: In order for him to contribute, does my business pay him W2 or it can be 1099?

ANSWER: If a partnership, a form 1065 would be filed and a K-1 issued to report his partnership income. If an S-Corp, a form 1120S would be filed and a W-2 issued to report his income.
3. QUESTION:  If the business generates enough income to pay him, he can also contribute up to $17,500?

ANSWER: Yes as the solo 401k contribution limits apply separately to each solo 401k participant.

 

4. QUESTION:  Does the bank accounts have to be set up individually one for myself and another for him?

ANSWER: Yes as each solo 401k participants’ funds are separately accounted for so two bank accounts are needed.

Regards,

Linda in Minnesota

Additional Resources

Solo 401k Do’s and Dont’s

Solo 401k Deadlines

Self-employment

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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