QUESTION: Hi- I am interested in setting up a solo 401k with checkbook control. My husband and I have a business as an S-corp and currently have our funds in SIMPLE IRA Plan for each of us. In addition I have a traditional IRA. My question is can we set up one Solo 401k and roll all of our funds (the SIMPLE IRA and Traditional IRA) into it or do we need to set up two separate solo 401k accounts? I have done a lot of research on these and have a pretty good handle on how everything else works.
ANSWER: Because the solo 401k would be sponsored (IRS lingo for saying setup by the S-corporation) by the self-employed business and provided you are both performing services for the S-Corporation that lead to earned income (i.e., W-2 income) not passive income, both spouses can setup/participate in the same solo 401k plan. This is why the IRS outlines in IRS publication 560 that both spouses can participate in the same solo 401k plan.
However, two individual accounts–one for each solo 401k participant–would need to be setup/opened for tracking their respective funds (i.e., IRA rollovers and ongoing annual solo 401k contributions).
For example, let’s assume that you name your solo 401k plan as the ABC Solo 401k Plan. Your respective individual accounts with checkbook control would be titled as follows:
Solo 401k Checking Account 1: ABC Solo 401k Plan F.B.O. Jason Doe
Solo 401k Checking Account 2: ABC Solo 401k Plan F.B.O. Jane Doe
As you can see, it is one solo 401k plan but two separate bank accounts with checkbook control (one for each solo 401k plan participant).
Further, your SIMPLE IRA and Traditional IRA would be transferred to your Solo 401k bank account with checkbook control, and your husband’s SIMPLE IRA would be transferred to his solo 401k bank account with checkbook control.
Lastly, before processing a transfer/direct-rollover of SIMPLE IRA funds to a Solo 401k, click here as certain restrictions apply (e.g., 2 year waiting period).
Christine in Indiana