QUESTION:
I’m wondering how long (legally) a Solo 401(k) can be kept open without having any self-employment activity for a Sole Proprietorship. I do my sole prop business on the side and may not have any revenues in a given year. From what I can tell through research, there doesn’t appear to be any specified time period for the IRS to have any legal problems with me keeping the Solo 401(k) open, so long as I’m not contributing. Is that correct?
RESPONSE:
The duration for which a Solo 401(k) can be kept open without self-employment activity depends on specific circumstances. If a Solo 401(k) owner operates a self-employed business through an entity and then closes that entity without continuing any self-employment activity, the Solo 401(k) plan would need to be terminated. However, if the owner operates as a sole proprietor and experiences little to no self-employment activity, there is the option to freeze the Solo 401(k). This means the owner cannot make contributions or take new loans from the Solo 401(k) during this period. Once the self-employed business is certain that will stop or not resume self-employment activity, the solo 401k plan will need to be shut down. Learn More:
