Good morning, I have a few questions regarding the solo 401k.
QUESTION: I’m self-employed but have not incorporated: Is it better or beneficial to incorporate prior to opening a solo 401k account?
ANSWER: For solo 401k qualifying purpose any type of business (e.g., sole proprietorship, partnership, corporation, and LLC) can open a solo 401k provided the following two conditions are satisfied:
- The business owner is performing services, whether on a part-time or full-time basis that lead to earned income not passive income; and
- The business does not employee full-time employees, defined as those working more than 1,000 hours per year.
QUESTION: My wife’s employer offers a 401k that she is not and has never participated in, Could she participate in mine?
ANSWER: Whether your spouse contributes to her day-time job 401k plan or not is irrelevant because the rules permit contributions to multiple 401k plans. However, for your spouse to contribute to the solo 401k adopted through your owner-only business she would need to be performing services and getting compensation from the owner-only business.
QUESTION: We each have existing IRA, Can they be combined in the Solo 401k?
ANSWER: As long as you meet the owner-only business requirements described above, each of you can move the respective IRAs (note that Roth IRAs cannot be move to a solo 401k) to the solo 401k.
QUESTION: Is the 60day once a year tax free use of funds also available in the Solo 401k, and would that be per participant, or the plan?
ANSWER: The once per 60 day rollover rule does not apply to 401k plans including solo 401k plans. However, in order to process distributions from a solo 401k certain requirements must be met. Further, the mandatory 20% federal withholding tax applies to rollover distributions from a solo 401k at the time of the distribution, so you would need to come up with outside funds in order to rollover the full amount distributed.
QUESTION: What’s the average time from opening the account to begin investing funds?
ANSWER: It depends on how quickly the company holding the IRA or retirement funds that will be transferred to the new solo 401k will release the funds, which varies from company to company.
CE in Idaho