Yes, you can start a legitimate business just so that you can open a solo 401k ; however, it is important to note that in order to continue with the solo 401k plan ongoing self-employment activity is required; otherwise, you will be required to close the solo 401k once self-employment activity ceases and transfer the plan to an IRA, for example.
To be eligible for a Solo 401(k) the following applies:
- You must have legitimate self-employment income or be a business owner.
- You cannot have any full-time employees other than your spouse.
Solo 401(k)s are meant for self-employed individuals and small business owners with no full-time non-owner W-2 employees. Solo 401k plans allow for higher contribution limits compared to traditional IRAs as a way to help the self-employed save more for retirement based on their earned income.
If you do not have legitimate self-employment income or a real business, you would not meet the qualifications for a Solo 401(k) under IRS regulations. Establishing a solo 401k without meeting the eligibility requirements could result in a taxable distribution.
In summary, a legitimate self-employed business that you intend to operate and continue to earn self-employment income from applies when opening a solo 401k plan. If you don’t qualify for a solo 401k plan, an IRA (traditional or Roth) may be another option.
