Self-Directed Solo 401k Eligibility Checklist

While a solo 401k is not a new type of 401k plan but rater a 401k for the self-employed, confusion often arises regrading qualifying to open a solo 401k plan. A solo 401k is for owner-only businesses with not full-time W-2 employees. For a example, a business where both spouses work for the business that does not employ full-time W-2 employees can adopt a solo 401k plan and both spouses can participate in the plan. Please see the following checklist for more on the solo 401k eligibility requirements.

Does Son Impact Eligibility QUESTION

I own a business and my son is a non-owner full time employee. Can I still open a solo 401k for both of us? Or just me?

Unless your son is under age 21you won't be able to open a solo 401k plan because he is a full-time employee (i.e., he works over 1,000 or more hours per year) in your business.

The solo 401k rules allow for the exclusion of W-2 employees under age 21 regardless if they work 1,000 or more hours per year in the business. You also have to consider if you own any other businesses that may employ full-time W-2 employees as it may impact the controlled group rules. Lastly, he would need to be BOTH an owner and an employee in the business in order to also be eligible to participate in the solo 401k plan.

EIN for Solo 401k QUESTION

Your process for setup indicates that the plan has its own EIN. Is this correct? Is it a separate business?

The solo 401k is a retirement trust so the IRS requires its own EIN.

Part-Time Employee Solo 401k QUESTION

I still have one part time employee that works about 4-6 hours per week, does this disqualify me from opening a solo 401k plan? If so I can easily convert him to 1099 subcontractor since he uses his own vehicle and sets his own schedules?

One may set up a Solo 401k notwithstanding that their business has w-2 employees provided that no w-2 employees are full-time (i.e. work 1000 hours per year with 1 year of service or 500 hours per year for 3 consecutive years). Also, note that contractors in your business may be excluded from the solo 401k plan regardless of the number of hours worked.

Note: Starting in 2025, the SECURE 2.0 Act reduces the three year consecutive requirement to two years of 500 hours.

Transfer IRA and 401k QUESTION

I have an SEP-IRA with Interactive Brokers and a 401 K with Fidelity. Can they be directly rolled over into Solo 401K?

Funds can be rolled over from former employer plans and SEP IRA to the Solo 401k and we will guide you through the transfer process as part of our service for no additional charge.

A Business With Full-Time Non-Owner W-2 Employees & Another Business for Just Me QUESTION

I have two businesses: one with a w2 employee and one with no employees. Both generate business income. The business with a w2 employee does not offer any retirement plans. Can I still run a solo401k plan in my business without w2 employees?

No - under the controlled group rules one who has one business with full-time w-2 employees can't open a solo 401k for another business with no employees.

Full-Time Job 401k & Solo 401k for My Self-Employed Business QUESTION

I have two jobs. A full-time job with its own 401k account and another self-employed consultation job. Am I eligible to open an SD solo 401K account?

The fact that you have a w-2 job won't prevent you from setting up a Solo 401k based on separate self-employment activity. https://www.mysolo401k.net/solo-401k-eligibility/

Impact of contributions to a Full-Time Job 401k on Solo 401k Contributions QUESTION

Would having another 401k account from my full-time job affect the contribution limit to the solo 401k account?

Contributions to a day job 401k reduce the amount of employee contributions that can be contributed to the solo 401k. https://www.mysolo401k.net/solo-401k/multiple-retirement-plan-solo-401k-contribution-rules/

Spouse Wants to Participate in the Solo 401k QUESTION

My consultation job does not have an employee at all; however, my wife (full-time housewife) sometimes helps my consultation works intermittently. Can she join the solo 401k account?

A spouse who works in the self-employed business and reports his/her own self-employment income may participate in the plan. https://www.mysolo401k.net/solo-401k-for-working-spouses/

Transfer Vanguard IRA to the Solo 401k QUESTION

My wife and I have IRA accounts at Vanguard. After opening a solo 401k account, can we roll-over the money from Vanguard to the solo 401k account?

Funds may be rolled over from a non-Roth IRA to the solo 401k and we will prepare the transfer forms as part of our establishment process. https://www.mysolo401k.net/solo-401k/the-process/

Control Group Question–Separate Business For Each Spouse QUESTION

I am in the process of setting up a company (C-Corp). I will be the only employee of this company. My wife owns an acupuncture clinic (S-Corp), and it has three employees. Can I set up a Solo 401K for myself through the C Corp, or am I precluded because of my wife's business that does have employees? As a side note, I don't know if I am 50% owner of her business or not, but I could find out if it makes a difference. It was set up such a long time ago, I just don't remember the details.

The fact that a self-employed person's spouse owns a business with non-owner full-time w-2 employees will prevent the self-employed person from setting up a Solo 401k unless (i) the two business don't interact with each other and (ii) the self-employed person does not own any part of the spouse's business and doesn't participate in the spouse's business. See more: https://www.mysolo401k.net/solo-401k/solo-401k-controlled-group/

Aggregate Owner-Only Businesses for making Contributions QUESTION

I already have a solo401k account . Now I have a second business and I am solo owner of the second business. Do I need to open a 2nd solo401k or I saw it might be possible to have 2 businesses contribute to the same solo401k. Is this possible and I assume the contribution limits are still capped the same between the two?

When you are the owner of both businesses, the solo 401k contributions are aggregated from all sources of self-employment income to the same solo 401k (and subject to the Solo 401k contribution limits): Aggregate From Multiple Sources of Self Employment Income for Making Self-Directed Solo 401k Contributions - My Solo 401k Financial

December 31, 2022 Solo 401k Adoption Deadline QUESTION

Is it possible to complete the process of opening a solo401k for me by EOY-Dec 31, 2022- if I start soon?

Certainly - you simply need to sign the solo 401k establishment documents by 12/31/2022 to preserve the right to make all types of 2022 Solo 401k contributions any time up until the self-employed business tax return deadline (including timely filed extension) next year. https://www.mysolo401k.net/solo-401k/the-2022-self-directed-solo-401k-establishment-deadline/ablishment process. https://www.mysolo401k.net/solo-401k/the-process/

Does the Self-Employed Business Have to be an S-corp QUESTION

I already max a day job 401K with employee match, so I really only plan to mega back door roth with after tax contributions. Do I need to set up an LLC or S-corp to take advantage of my income which I file directly under my name on 1040 Schedule C?

It is not necessary to set up a legal entity for one's self-employed business in order to be eligible to open a solo 401k. We have many clients who operate as a sole proprietor. The key is that such person reports earned self-employment income with no full-time w-2 employees working for any business owned by such person or a spouse if any.

Moreover, one make solely after-tax contributions to the Solo 401k notwithstanding that such person maxes out contributions to their "day job" 401k.

New SECURE 2.0 Act December 31, 2023 Solo 401k Adoption Deadline QUESTION

Did the self-directed solo 401k establishment deadline change under SECURE 2.0 ACT?

Yes and for the better. For solo 401k plans started/opened in 2023 and later years, the solo 401k plan can be opened by the businss tax return plus Yes and for the better. For solo 401k plans started/opened in 2023 and later years, the solo 401k plan can be opened by the business tax return plus extension so that both employee and employer contributions can be made for the prior self-employed business tax year. extension so that both employee and employer contributions can be be made for the priors self-empoyed busienss tax year.

Solo 401k Account opening Considerations

Common Questions About Our Self-Directed Solo 401k Services

How long does it take to open an account and get the EIN? ANSWER: We provide solo 401(k) establishment documents within the same day or 24 business hours of someone signing up. We provide a link to our secure portal to access the documents. Client simply download sign and upload as well as let us know where they want to have the new accounts at so that we can prepare the paperwork to open accounts at the bank or brokerage of choice as well as obtain an EIN for the solo 401(k).
How would you help with the rollover of funds? What’s the process? The plan administrator wants to send the checks to me ANSWER: We have deep experience helping clients transfer funds from 100s of different financial institutions and other retirement plan providers. As you can imagine, each of these institutions will have their own unique process. We leverage our deep experience and familiarity with the different processes to make the process easy for new clients including pre-filling and preparing transfer paperwork, etc. The funds are typically transferred by check payable to the name of the solo 401(k) and mailed to you. You would then deposit the transfer checked into the new account for the solo 401(k).
Do I have to have self employment income before we can establish the plan and do the rollover? Can I figure out the self employment income after we establish and fund the plan? ANSWER: In order to be eligible to set up a solo 401(k) for 2023, one must be self-employed including reporting earned self-employment activity on their taxes for 2023 and going forward (e.g. on schedule C for a self-employed business taxed as a sole proprietor, W-2 wages for a self-employed business taxed as an S corporation, etc.) as well as have no non-owner/nonspouse full-time W-2 employees working for any business owned by such person or spouse (if any).
If I start with one business, can I change that business and maintain the same plan? ANSWER: If a self-employed individual with a solo 401(k) reorganizes their self-employed business (e.g. changes their business structure from the a sole proprietor to an LLC), they can still maintain the solo 401(k) as long as there are no non-owner/nonspouse full-time W-2 employees working for any business owned by such person or spouse (if any).
Do you provide a bank account as part of the back or would I have to find my own? Would Bank of America or Chase work? Which banks work well? ANSWER: As part of the establishment process, we help our clients open accounts at the bank or brokerage of choice including preparing a bank account packet that contains the documents that the banks required to open accounts for a solo 401(k). Based on experience and client feedback, local banks and credit unions seem to work best.
If I start with one bank, can I change it down the road and maintain the same plan? ANSWER: Certainly
Does your platform keep records of funds movements within participant accounts or do I have to manage that myself outside of the self service platform? ANSWER: We don’t have access to our clients’ accounts.
Would it be an LLC or Trust as the entity? Pros/Cons of each? ANSWER: A solo 401k is a federal retirment trust.
Do you provide 1099-R, 5500-EZ? GHB: Certainly, if it applies as part of our service for no additional charge.
Do you have a Roth option? ANSWER: Definitely – Roth and Mega Backdoor Roth are top reasons why clients open accounts witih us. https://www.mysolo401k.net/solo-401k/mega-back-door-roth-using-solo-401k-plan/
Do you facilitate a mega backdoor Roth contribution? ANSWER: Yes – Mega Backdoor Roth is a top reason why clients open accounts witih us.
Any restrictions on the type and structure of alternative assets? VC, PE, Farmland, business interests, crypto, Syndications, foreign investments, real estate, structured finance, Carbon credits, Oil and Gas etc ANSWER: Investing in alternative investments is one of the top reasons that clients open accounts with us. We field questions every day from clients with respect to the mechanics of investing in these types of investments. In terms of restrictions, one may not invest in any investment that would constitute a prohibited transaction (e.g. a solo 401(k) owner may not invest in a business where that individual is also an owner personally and/or working the business). In addition, the investment must be made under the name and EIN that the solo 401(k).
What are the fees? ANSWER: We charge an initial fee of $650 which covers the solo 401(k) establishment as well as the first 12 months of ongoing compliance support. On the anniversary date (i.e. 12 months later) we charge an annual fee of $125 which covers the second year. https://www.mysolo401k.net/solo-401k/solo-401k-pricing/
Do the fees cover unlimited investments support and transfers? ANSWER: Yes
Would I have checkbook control? ANSWER: Certainly – we help clients open accounts at the bank or brokerage of choice which account provider will provide checkbook access (e.g. many of the brokerages support a checkbook feature).

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