About Solo 401k
With tax-deferred savings of up to $54,000 for 2017 ($60,000 if you are age 50 or older) and $55,000 for 2018 ($61,000 if you are age 50 or older), and the invaluable choice to pick your own investments, make pretax, roth and after-tax contributions, and take solo 401k participant loan, our solo 401(k) is the perfect retirement vehicle.
A Solo 401(k) is for owner-only businesses or those with only part-time employees. Self-employed businesses include sole proprietorships, closely held family businesses, LLC’s, partnerships and corporations.
The Solo 401(k) retirement plan allows for salary deferrals found in 401(k) plans, and employer contributions found in profit-sharing plans. You can make annual contributions of both salary deferral and profit-sharing contributions, empowering you to save up to $53,000 in 2016 ($59,000 if you are more than 50 years old), tax-deferred. The Solo 401k annual contribution limit increased by $1,000 for tax year 2017 to $54,000 and $60,000 for those 50 or older.
The process starts by us collecting information via our on-line application to draft the solo 401k plan documents, obtain the EIN for the solo 401k and draft the transfer forms.
You have the option to fund the Solo 401(k) plan with annual contributions or transfers from other retirement accounts. You will have the freedom of investing those contributions through the investment vehicle of your choice. You can use any bank or brokerage account of your choice to establish a checking account for your Solo 401(k), and we will assist you in completing the paperwork for the solo 401k checking account.
Since we never have access to your funds, you are responsible for monitoring the balance in your Solo 401(k) account and notifying us when the balance reaches $250,000 at any year-end.
Reason being, you are required to complete an IRS Form 5500-EZ, which we can assist you with, once your balance reaches $250,000.
If you would like us to complete the form for you, no additional fees will apply. Remember, this form is only required if your Solo 401(k) balance reaches $250,000.
No annual tax reporting is applicable until your assets reach $250,000. At that point, you must file a Form 5500-EZ. Form 5500-ez support is included in our annual fee for those who notify us of their solo 401k balance.
However, you must always file a Form 1099-R with the IRS should you take a distribution of your plan assets upon plan termination or during participating in the plan. Form 1099-R also applies to in-plan Roth solo 401k conversion of both after-tax and pretax funds. Form 1099-R preparation is included in our annual fee.
The deadline to establish your Solo 401(k) plan is December 31st.
For Sole Proprietors:
Employee and profit-sharing contributions must be funded by your tax-filing deadline plus timely filed business extension, provided your plan was adopted by December 31.
For Incorporated business:
Employee and profit-sharing contributions must be funded by your business tax-filing deadline, provided the plan was established by the end of the previous year. To learn more about the various funding deadlines, CLICK HERE.
Unfortunately, it is too late to open the solo 401k for making contributions for the previous tax year (in your case 2017), because it is now 2018, and pursuant to the solo 401k contribution rules (see IRS Publication 560), the solo 41k plan had to have been set up by December 31 of the prior year (in your case 2017) in order reserve the right to contribute to the solo 401k plan by your business tax return (in your case 2018) plus timely filed business tax return extension. Therefore, The new solo 401k plan would be dated for 2018, so any contributions into the new plan would be counted for tax year 2018.
(1) At a high level, our services are two-fold: (i) We take care of everything required to set up our IRS-approved Solo 401k plan with checkbook control for your business including account setup, funds transfer, etc.; and (ii) going forward we provided all of the ongoing compliance support for your Solo 401k plan. For more information on our services and pricing please click HERE.
Step 1: We need to collect information to draft the solo 401k plan documents and to get the tax identification number for the solo 401k trust. Complete our on-line application by CLICKING HERE, or call us to walk you through the on-line application.
Step 2: Once we receive your solo 401k on-line application, we will start the solo 401k establishment process by drafting the solo 401k establishment documents, and we will e-mail them to you the next business day for your signature.
Step 3: Once we receive copy of your signed Solo 401(k) plan establishment documents, we will obtain the tax identification number (EIN) from the IRS for your new solo 401k trust, prepare the transfer forms if you plan to transfer IRA and/or former employer funds to the new solo 401k. We will also proceed with assisting you in establishing the bank or brokerage account for the Solo 401(k) so you can start making investments right away.
NOTE FOR FUNDING BOTH ROTH, AND AFTER-TAX CONTRIBUTIONS: If you plan to make both Roth, and after-tax contributions, you MUST open up additional identical checking accounts. Reason being, this is an IRS requirement, plus this will help in segregating pre-tax vs after-tax, and Roth contributions.
We can usually adopt your solo 401k plan by the next business day that you decide to sign up. This will allow for immediately commencing the bank or brokerage account setup as well as the completion of the transfer forms for your IRA or former employer plan transfers.
No, we will need to help you obtain a separate EIN (Employer Identification Number) for the solo 401k from the IRS since a solo 401k is a retirement trust not a business.
This depends on the type of plan or account from which you are intending to roll/transfer the funds.
If the funds are in a rollover or conduit IRA, Traditional IRA, SEP IRA, TSP, 457b, pension, a profit-sharing or a former employer 401(k) plan, they can be rolled into the Solo 401(k) as long as you did not make any after-tax contributions to those IRAs.
While SIMPLE IRAs can also be transferred to a solo 401k plan, if you have a SIMPLE IRA that has been in existence for less than 2 years, please e-mail us at info@MyISolo401k.net or call us at 800-489-7571 to discuss what you can do.
IMPORTANT: if you have contributed to a SIMPLE plan this year, you can only establish a Solo 401(k) for the next calendar year, as regulations do not allow you to contribute to a SIMPLE and establish a 401(k) in the same year. Call us and we can shed more light on this.
If you receive the funds in the form of a rollover instead of a direct-rollover, you have 60 days from the day you receive your rollover check to roll your funds over. To learn about a rollover vs a direct-rollover, CLICK HERE.
No, your stocks and alternative investments (e.g., real estate, notes, etc.) can be transferred in-kind, which means that they will be transferred as is to your new plan.
You can sign up for a Solo 401(k) only if all of your employees are working part-time (that is,. fewer than 1,000 hours per year).
If you have full-time employees, you can contact us at info@MySolo401k.net or 800-489-7571.
If your spouse performs services and is compensated from the business, this person can participate in the same Solo 401(k) plan. The maximum amount your spouse can save also depends on his or her income, salary and age. A solo 401(k) is for business owners and their spouses.
Since Solo 401(k) is for owner-only businesses, partners are eligible to participate as well as family members if they are also partners in the same business. In other words, solo 401k plans are only for owner-only businesses with no full-time W-2 employees who are not owners of the business sponsoring the solo 401k plan.
Prior to hiring any full-time employees, we recommend that you get in touch with us by e-mail at info@MySolo401k.net or by phone800-489-7571 to find out how we can assist you with additional retirement plan services that will support your company’s growth.
Note that once you hire a full-time employee, you will no longer be eligible to maintain a Solo 401(k). It is very important that you get in touch with us at that time to discuss your options.
You can contribute up to $54,000 in 2017 and $55,000 for tax year 2018 (including an additional catch-up contribution of $6,000 if you are age 50 or older). The maximum amount you can contribute depends on your income or profit in any given year.
Contact us at info@MySolo401k.net or 800-489-7571 and we can help you calculate the contribution amount.
No because a solo 401k is for owner-only employees not common-law employees.
No, there is not. You are not required to contribute to the plan every year.
If you are age 50 or older, you can contribute an additional $6,000 (for 2017) into your Solo 401(k) plan. The $6,000 catch-up also applies for tax year 2018.
For details of how much more you can stash away this year, please contact us at info@MySolo401k.net, or visit our on-line solo 401k contribution calculator.
No, the profit sharing contribution limits apply separately to each employer plan. The profit-sharing contribution cannot exceed 25% of gross income from a corporation, or 20% of net earned income for sole proprietors/partners. To learn about the rules surrounding making profit sharing contributions to multiple plans, VISIT HERE.
Unfortunately, retirement payments, Social Security, and investment income are not considered earned income. Self-employment income is what is needed in order to make solo 401k contributions.
No you do not need to deposit your Solo 401k contributions by year-end. Per the IRS publication covering the rules for Solo 401k plans and other owner-only retirement plans (IRS Publication 560), both employee and employer contributions can be made by the due date of the tax return for your self-employed business including timely-filed extensions. Specifically, the chart titled “Key Retirement Plan Rules” on page 3 the publication states that both employee and employer contributions can be made up until the tax return is due (including extensions). VISIT HERE, to learn more about this often misunderstood rule.
A solo 401k also referred to as Solo 401k Real Estate or, 401k Real Estate, allows you to invest in any security or alternative investment such as real estate, private investments, private loans, metals, tax liens, equities and much more. For a sample list of solo 40k investments, VISIT HERE.
No. You don’t have to submit the investments for our approval since we are not the trustee of your solo 401k plan. At the same time, we are here if you have questions. We also have free investment forms located here for your internal use as it is important to fully document your solo 401k alternative investments.
Roth 401k and After-Tax Contributions
A solo 401(k) allows for both Roth and after-tax contributions. While a Roth IRA also allows for Roth contributions, a solo 401(k) allows for sharply higher annual Roth contribution amounts for the employee deferral election than a Roth IRA of up to $18,500 ($24,500 if age 50 or older) in the 2018 tax year versus just $5,500 ($6,500 if age 50 or older), for a Roth IRA.
Yes, you can make contributions to both; however, the combined amount contributed in any one year is limited to $18,500 for 2018 (plus an additional $6,000 in catch-up contributions if you age 50 or older).
Yes, the combined amount contributed to all Roth accounts and traditional, pre-tax accounts in any one year for any individual is limited to $18,500 for 2018 (plus an additional $6,000 in catch-up contributions if you are age 50 or older).
Our solo 401k plan already allows for all three types of contributions: pretax, Roth and after-tax. Therefore, when we setup your solo 401k plan, you will simply need to open separate bank or brokerage accounts for each solo 401k contribution component. A separate holding account is required for reporting purposes.
Also, since you have already been taxed on Roth contributions, it is imperative that you record these contributions. At year-end and upon distribution, you will want to disclose to the government what contributions have already been taxed.
You should track all deposits made into your pre-tax (profit-sharing), Roth and after-tax accounts for reporting purposes on year-end tax filings and at the point of distribution. We can assist you with this.
Please note: Due to the pre-tax vs. after-tax component of the different source types, pre-tax and employer profit-sharing contributions should be deposited into the same bank account and tracked each year. The Roth 401(k) contributions, and after-tax contributions must be held in separate bank accounts and tracked separately.
However, if you roll over a distribution from a designated Roth account to a Roth IRA, you should keep track of the amount rolled over in accordance with the instructions to Form 8606, Nondeductible IRAs.
If you receive a distribution from your Solo 401(k) account, you may be responsible for filing a Form 1099-R to report the distribution to the government. When you request the distribution from your investment company, confirm whether they are going to file the 1099-R or not.
Yes, you can roll your Roth 401(k) account over, but only to Roth 401(k) account of another employer, or to your personal Roth IRA.
If you do not roll your Roth account over as described above, the previously-untaxed earnings will be treated as an early distribution from a qualified plan (and consequently subject to the taxes and penalties for any such early distribution) UNLESS you had this Roth account for more than five years.
Yes. At the time that you establish your Solo 401k checking account or when you are ready. The key is that you have to segregate the regular (pre-tax) contributions from the Roth (post-tax) contributions by establishing two checking accounts under the name of your Solo 401k. When you are ready just gives a call and we can assist you with this.
If you already have a Solo 401k plan with us, you will need to open up an additional checking account with your bank provider for your Roth contributions.
To find out how to set up a Roth account with us if you already have a Solo 401k account, please contact us.
Yes. Solo 401k allows for participant loans.
You can borrow up to 50% of the account balance from your Solo 401(k) just no more than $50,000 (minimum of $1,000).
For example, Earl has a vested account balance of $150,000. Fifty percent of his account is $75,000, however the maximum loan that can be taken from a plan is $50,000.
The interest and principal is paid to the Solo 401k and payment is required to be made at least quarterly. There is a five-year term for a general loan. The interest rate used is prime plus 1%.
It is recommended that when funding your approved loan, you ONLY take the proceeds from either the pre-tax or Roth (after-tax) account. This will make it easier to track the loan and repayment amounts more easily, especially when reporting account activity to the government.
IMPORTANT: you will be responsible for tracking all distributions and payments made back to the loan on either a Pre-tax or Roth (after-tax) basis. Please consult with your tax professional for more information.
It takes about two business days to process the loan.
Yes you can take multiple loans up to the 50% of your solo 401k account balance not to exceed $50,000 in aggregate. To learn more about the solo 401k participant loan limits, CLICK HERE.
If you are terminating your solo 401k plan, a final Form 1099-R and Form 5500-EZ will need to be filed with the IRS. Both of these reports are included in our annual fee.
MORE SOLO 401K FAQs
In-Kind Distributions QUESTION:
Distributions from a solo 4o1k are not required to be in the form of cash; therefore, provided you meet a solo 401k distribution triggering event, the solo 401k owned property can be distributed in your name and taxes will apply on the value of the property at time of distribution.
Partial Rollover/Transfer QUESTION:
Yes the solo 40k rules allow for incoming partial rollovers and/or direct rollovers. The same is true for transfers from other 401k plans or qualified plans–that is, they can be fully or partially transferred to the solo 401k plan.
Bank or Brokerage Firm Role QUESTION:
With our Solo 401k plan, the role of the bank or brokerage firms is to simply provide a holding account for the solo 401k & not to provide any tax reporting/record-keeping nor oversee the account.
Types of Real Estate QUESTION:
Yes the solo 401(k) rules allow for these types of investments. Therefore, our solo 401(k) plan also allows for these types of real-estate investments. To learn more CLICK HERE.
Alternative Investment Types QUESTION:
Yes the solo 401(k) rules allow for these types of alternative investments. Therefore, our solo 401(k) plan also allows for these types of alternative investments.
When taking the RMD, Uncle Sam simply cares that you are paying taxes on the required RMD amount. In other words, the required minimum distribution can be in the form of cash, cash and assets, or just assets. If satisfied by distributing in-kind part of an asset such as real estate, the property will need to be appraised by a third-party to determine that value, then the whole or part of the property gets assigned in your name and you pay taxes on that amount.
Unwind if Hire Employees QUESTION:
In that scenario, you would either have to amend the plan to a 401k plan that supports non-owner employees or shut down the 401k.
Shutting Down Solo 401k QUESTION:
The difficulty in shutting down the solo 401k plan depends on the circumstances. If you have alternative assets (e.g. real estate), those would need to be transferred to an IRA that allows you to hold such assets. If you have a solo 401k loan, the loan would need to be either paid back in full or the outstanding amount would be considered a distribution.
Converting the plan would include amending the plan documents & making the plan available to eligible W-2 employees.
We offer an IRA LLC that would allow to hold real estate (in the even that you need to transfer alternative assets as described above).
Specific Bank or Firm QUESTION:
The account will be opened at the financial institution of your choice (e.g. bank, brokerage, etc.). If you go the brokerage route, we will prepare the required account opening documents as part of our services for no additional charge. If you go the bank route, we have a banking guide and will stand ready to assist and answer any questions for your banker. To learn more about the solo 401k bank account and the brokerage account similarities and differences (note that both come with checkbook control), VISIT HERE.
As a fellow entrepreneur, I certainly understand the importance of providing excellent service at a fair price. We strongly feel that our solo 401k price is very competitive and the best value giving the level of service and expertise provided. For example, we have over 65 5-star reviews on the Better Business Bureau. https://www.bbb.org/sdoc/
Bank Account and Brokerage Account QUESTION:
Good question. Yes you can since they would be for the same solo 401k plan. A solo 401k can have multiple holding accounts and funds can be freely moved between the holding accounts without triggering reporting.
Can a Writer Open a Solo 401k QUESTION:
Yes writing is considered self-employment activity and thus a solo 40k plan can be established. The IRS actually confirms such in IRS Publication 560, the publication for self-employed plans including a solo 401k plan.
Rollover My IRA QUESTION:
As part of our solo 401k account opening service as well as ongoing support, we will draft the IRA or former employer transfer forms to ensure the IRA or former employer funds are directly rolled over to the solo 401k without causing any adverse reporting consequences. The institution the currently holds the IRA or former employer funds will generally provide a transfer form but we can also draft one for those who do not provide one. The rollover/transfer rules are generally the same for all retirement accounts. To learn more, CLICK HERE.
I Already Have a Solo 401k QUESTION:
Our solo 401k setup fee of $795 would still apply because you would now fall under our IRS approved solo 401k plan which allows for 401k participant loans, investing in alternative investments such as real estate as well as both Roth and after-tax contributions. Your existing solo 401k plan would be “restated” to our solo 401k plan which is how the IRS would expect such change to occur, CLICK HERE.
Make Solo 401k Distributions QUESTION:
Yes solo 401k distributions can commence at age 59 1/2 which would result in not having to pay the 10% early distribution penalty, but federal taxes would still apply. To learn more about the solo 401k distribution rules, CLICK HERE.
Contribute to Multiple 401k Plans QUESTION:
Employee contributions are capped at $18,000 (plus a $6,000 catch-up if age 50 or older) between all 401k plans. Therefore, if you have already maxed out your day-time job 401k, you cannot make any more employee contributions to the solo 401k plan. However, the employer profit sharing contributions are not aggregated between all plans. Therefore, even if your employer has maxed out the profit sharing contributions to your day-time job, you can still max out the profit sharing contribution to your self-employed solo 401k plan. For example, if your self-employed business is a sole proprietorship and you have $9,000 of net self-employment income (line 31 of Schedule C), for tax year 2017 you can contribute $1,762 as a profit sharing contribution. I used our on-line solo 401k contribution calculator to calculate this figure.
I remember when I started the plan I had selected an option for Eligibility Service Requirement as One Year of Service. Does this mean that before my business offers someone a 401K benefit, the person has to be employed for one year prior?
Contractors can be be excluded from participating in the solo 401k plan. With respect to W-2 employees, those who work less than 1,000 hours during the year can also be excluded from the plan.
Promissory Note Investment QUESTION:
While we don’t require any forms since we are not the trustee of the plan (you are the trustee of the solo 401k plan), you will need to make sure to document the promissory note investment. For example, a promissory note is required (i have attached a sample copy). You can also use the note investment form located on the following link to further document the note investment, as it is important to properly document all solo 401k investments. https://www.mysolo401k.net/learn/forms/
The following promissory note investment sample procedure may be helpful.
Also, the following link explains more how a promissory note works.
And the following link is a good Q and A on the promissory note investment rules.
Industry Practice for Transfers/Rollover QUESTION:
Excellent question. We have found that most former employers will not transfer employer plans such as 401k plan’s, TSP’s, 457b’s, 43b’s and Pensions electronically. Instead, they will issue the transfer check made payable in the name of the solo 401k trust. We suspect that they proceed in this fashion because they want to further affirm the transfer was processed correctly since the check is made payable in the name of the solo 401k. We have also found the same to be true for transfers from IRAs unless the funds can be transferred internally (that is, the IRA funds are transferred internally to the solo 401k bank or brokerage account).
Solo 401k Friends QUESTION:
Good question. In order to participate in a self-directed solo 401k plan, part-time self-employment activity at minimum is required. Note that participating in your day-time employer 401k will not preclude you from also opening a solo 401k for your self-employed business.
Invest in Friend’s Real Estate LLC QUESTION:
You appear to be describing UDFI, which does not apply to solo 401k plans, but does apply to IRAs. See the following:https://www.mysolo401k.net/ubit-and-udif-differences/
Private Equity Investment QUESTION:
Use Business Bank Account for Solo 401k QUESTION:
Good and important question. No you cannot use your business bank account to hold the solo 401k funds. Reason being, the solo 401k is required to have a bank account where just the solo 4o1k funds are held; therefore, the solo 4o1k bank account cannot be commingled with your business or personal funds. Also, the solo 401k bank account will need to be titled in the name of the solo 401k and the plan’s EIN (employer identification number) must be used by the bank for reporting purposes.
Remitting the 20% Mandatory Federal Tax QUESTION:
Because we don’t have access to our client funds, the client is responsible for submitting the 20% mandatory federal tax to the Department of the Treasury by the 15th of the following month.
See the following for more information: https://www.mysolo401k.net/making-solo-401k-distributions/
Also, statutory rules apply when taking distributions from a 401k including a self-employed solo 401k. Please see the following.
- If you are over age 59 1/2, you can distribute any amounts.
- If you are not over age 59 1/2, you can generally only distribute any amounts that were transferred/rolled over to the solo 401k from other retirement plans and/or IRAs.
Will You Issue the Form 1099-R QUESTION:
Yes we will prepare the Form 1099-R once you submits our solo 401k distribution form.
No Paycheck QUESTION:
You have to take a paycheck in order to make employer contributions as both the employee and profit sharing contributions are based on net self-employment income.
Beneficiary IRA QUESTION:
Yes you can transfer retirement plans and/or IRA to a Solo 401k or a self-directed IRA since you inherited the retirement plan or IRA from your spouse. This option is only afforded to spouse’s. The following link is useful in describing the similarities and differences between a solo 401k and an IRA.
Transfer Funds from Current Employer 401k that We Rolled Over from Another Employer 401k QUESTION:
Good question, and yes those funds from the former employer 401k that are currently held in the existing employer 401k can certainly be transferred to the solo 401k plan as long as the current employer’s plan allows for it. It is a tricky situation because even though the rules allow for it, the current employer can restrict the transfer of funds transferred into the plan from a former employer 401k plan. We strongly recommend getting a copy of the existing employer’s 401k plan Basic Plan Document or Summary Plan Description Agreement as specific language will be embedded in these documents regarding this topic. We will gladly review those documents for you once you obtain them from your current employer 401k provider.
Rollover to IRA QUESTION:
Yes the solo 401k can be transferred to an IRA once you shut down the self-employed business that sponsors the solo 401k plan. In fact, an IRA is where most transfer their former employer 401k plan including a solo 4o1k plan.
IRA or Solo 401k QUESTION:
They both allow for investing in alternative investments including real estate, but the solo 401k is generally more advantageous. For example, the contributions limits are higher for a solo 4o1k plan, you can borrow from a solo 4o1k plan, and the ongoing fees are also generally much less. See the following link for more on this.https://www.mysolo401k.net/self-directed-solo-401k-vs-self-directed-ira/
Pursuing Self-Employment Activity QUESTION:
Taking RMD from Roth and Pretax Solo 401k Funds QUESTION:
With respect to taking the RMD from the solo 401k plan, the standard practice is to take a separate RMD amount from each account (i.e. a distribution from the pre-tax account and a second distribution from the Roth account). In that case, two separate calculations would need to be performed–one on each source (Roth and pretax). If the plan allows you to do so, however, the amount of the distribution may be aggregated across account balances meaning that the total required minimum distribution amount can be satisfied in any combination between the two accounts. Please note that our Solo 401k plan would allow for this approach to satisfy the RMD requirement. A scenario where this approach may be preferable would be one where the requirements to make a qualified Roth distribution have not been satisfied (e.g., you have had the Roth account for less than 5 years).
How Easy to Amend/Restate From Brokerage House/Firm QUESTION:
We regularly restate 401(k) plans from brokerage firms such as E*TRADE and TD Ameritrade. The process is the same in terms of timing (i.e. we will email the restatement documents within one business day of you signing up). With the restatement, please note that a new account will need to be established and the assets transferred to the new account.
S-Corp Election Impact on Solo 401k QUESTION:
It simply impacts how the contribution limit is calculated. For an LLC taxed as a disregarded entity, you determine the amount you contribute based off of the line 31 of schedule C (after reducing by one half of the self-employment tax). For an LLC that is taxed as an S corporation, you determine the amount you contribute based off of the W-2 income that you receive from the S corporation.
Switching from Sole Proprietorship to LLC QUESTION:
Yes you can certainly keep your plan as is (i.e., same plan name same brokerage/bank account, for example). We will just need to process a 4 page amendment to list the new business. When ready, pleas provide the new business name and address.
Schedule E QUESTION:
Schedule E income is not a basis to make contributions to a solo 401(k) plan. The purpose of a solo 401(k) is to allow a self-employed individual to save his or her earned income (not investment income such as investment income reported on schedule E).
IRA Transfer QUESTION:
There is no form issued by the Solo 401k with respect to the rollover (i.e. this is an IRA but not a 401k requirement). Besides a 1099r (which should have been issued with a code G with box to report the non-taxable direct rollover), you could show that the transfer check was deposited into the 401k account & the check was made payable to the Solo 401k.
Primary Residence/House QUESTION:
The maximum penalty free distribution exemption of $10,000 for the first-time homebuyer only applies to IRAs not 401k plans including solo 401k plans. Please see chart listed on the IRS page for more on this. Note that taxes would still apply to the IRA distribution just not the 10% early distribution penalty if you are under age 59 1/2.
Not Run Own Company QUESTION:
No as you have to be an owner-employee to participate in a solo 401k plan.
Solo 401k for Author QUESTION:
Yes that qualifies as long as no full-time, W-2 employees. key is that income is ultimately income attributed to work done (e.g. writing a book) vs. passive royalty income.
Mom and Brothers Participation QUESTION:
Yes provided they are all owner-employees in the S-corp with not other full-time W-2 common-law employees. The S-corp would sponsor the solo 401k plan and all 5 (five) would participate in the same solo 401k plan. Each participant would separately hold their retirement funds in participant accounts. Lastly, when it comes time to determine if a Form 5500-EZ will need to be filed for the plan, all of the participants balances will need to be added up and if the combined value exceeds $250,000, a Form 5500-ez will need to be filed each year by 07/31.
While a Solo 401k plan is exempt from Title 1 of ERISA (because it is a one-participant plan), it is subject to the prohibited transaction rules and as such falls within the ERISA definition of a “benefit plan investor.”
IRS Solo 401k Plan QUESTION:
For all practical purposes, there is no difference. What is important is whether the plan has been approved by the IRS (i.e. which means it’s a qualified plan) and whether the plan would allow you to hold Roth funds (which our plan certainly does).
Gift Solo 401k QUESTION:
- Neither the IRA nor the solo 401(k) regulations allow for gifting (the “Gift Tax Exemption”) retirement money.
- The rules do not allow for transferring, assigning or gifting of solo 401k funds during the account owners lifetime.
- The only exception to the no transfers during life rule is for transfers due to divorce where the solo 401k funds are transferred to the ex-spouse to satisfy a QDRO.
Interest Income for Roth Solo 401k Contribution QUESTION:
Whether making Roth and/or pretax solo 401k contributions, all solo 401k contributions are based on net self-employment income. Therefore, solo 401k contributions cannot be made based on passive or interest income. This is high on the IRS radar and it is covered in IRS Publication 560.
One Property Self-Employment QUESTION:
Good question. While it may be murky territory, it would be best not to open a solo 401k on the basis that you manage just one property that you also own, as the IRS may challenge that you are not self-employed since it is only one property. On the other hand, if you manage properties owned by third-parties, you could justify that activity as self-employment activity. Also, if you own multiple properties and manage them, it would be more justifiable that you are performing self-employment activity.
Protected by ERISA QUESTION:
Solo 401K plans have creditor protection under the federal bankruptcy rules. While solo 401K plans are not covered by the federal creditor protection rules of ERISA, they are generally protected under most state laws subject to certain carve outs (e.g., such as child support).
Funding Account Help QUESTION:
Absolutely. Not only do we have clients at hundreds of banks across the country, we also have helped our clients open thousands of accounts at brokerages such as Fidelity and Schwab just to name a couple. At the beginning of the process, we will draft all of the establishment documents which create the plan and email them to you within one business day after you sign up. Included with that email will be a banking guide that you can take with you to your local bank & and bring us on the phone to answer any questions that your banker may have regarding the account set up.
Transfer Checkbook IRA / IRA LLC to Solo 401k QUESTION:
Thank you for reaching out. If you are self-employed, which appears to be the case, then you could transfer the existing SEP IRA and traditional 401(k) (assuming it is a former employer 401k plan) to the solo 401k plan. With respect to the existing IRA LLC, it can be transferred in-kind to the solo 401k plan. The IRA LLC would be assigned to the solo 401k plan, resulting in the solo 401k plan becoming the new and sole member of the LLC. We would assist with the transfer of the IRA and other retirement plans into the solo 401k.
Solo 401k as Sole Member of LLC QUESTION:
While not required since a solo 401k already comes with checkbook control and alternative investments can be placed under the solo 401k plan, you can certainly invest your solo 401(k) funds via an LLC for passively investing in alternative investments. As described at the link below, this would entail the following:
- Setting up a brand-new LLC.
- Your solo 401(k) would be the sole member of the LLC.
- There will be a separate bank account in the name of the LLC and under the employer identification number for the LLC.
- You will be the manager of the LLC and as such will have checkbook control over the funds.
- You will then be able to invest in the name of the LLC.
Deposit Properties into My Living Trust QUESTION:
Your attorney may not know that a solo 401k is a retirement trust and therefore specific rules apply. The solo 401k rules do not allow for the transfer of the solo 401k property to your living trust unless it is upon your death assuming the living trust is the primary beneficiary of the solo 401k plan. Therefore, you can discuss with your attorney as to whether you should name your living trust as the primary beneficiary of the solo 401k plan. Following are some good links to share with you attorney.
Charitable Donation QUESTION:
No. Qualified charitable distributions only apply to IRAs not self-employed plans such as solo 401k plans, SEP IRAs or SIMPLE IRAs.
Also, in order for the IRA holder to treat the distribution as a “charitable distribution,” he or she must be age 70 1/2 or older and a dollar exemption applies. CLICK HERE to learn more about these rules.
Severance Package QUESTION:
From a solo 401k eligibility perspective, no you do not have to wait until your severance pay seizes in order to open a solo 401k plan as long as you are pursuing self-employment which appears to hold true for you. However, you will need to check with your former employer as they may have included language in the severance agreement stating that you cannot transfer your former employer 401k funds until the severance pay has concluded.
Leased Employee QUESTION:
No as long as he or she is not a full-time W-2 employee (does not work 1,000 hours or more) of your business then she can be excluded from the plan.
Yes solo 401k plan are fully protected in bankruptcy. This matches the protection given to other self-employed plans such as SEP IRAs and SIMPLE IRAs.
Divorce, QDRO QUESTION:
In short, yes a QDRO applies to a solo 401k plan. See the following.
Solo 401k for Expat US Citizen QUESTION:
A solo 401k plan is for owner-only businesses and their spouses. Therefore, as long as you are self-employed and pay US taxes, a US expatriate can participate in a self-employed solo 401k plan. Contributions to the solo 401k plan have to be based on earned income not investment or passive income. If you have no earned income or if you’ve excluded all earned income from U.S. tax using the foreign earned income exclusion (FEIE) and the foreign housing exclusion (FHE), you cannot contribute to a solo 401(k).