Once your business employs a W-2 employee who works 1,000 hours or more during the year, you will no longer qualify for a solo 401(k) plan.
Following are the typical options once your business grows and employs full-time W-2 employees.
One option is to transfer the solo 401(k) to a self-directed IRA.
See the following:
A second option is to invest the solo 401k in an LLC
Multiple steps apply. A new LLC is opened and the existing solo 401k funds and assets are deposited into the new LLC. This results in a single member LLC where the solo 401k is the sole member of the LLC.
Subsequently, the new Solo 401k LLC is transferred in-kind to a self-directed IRA, resulting in an “IRA LLC” aka “Checkbook IRA” and solo 401k plan is then closed with the government by issuing a Form 1099-R and a final Form 5500-ez to formally close the solo 401k plan.
See the following:
A third option is to convert/restate the solo 401k to a full-time employer 401(k) plan
The solo 401k is restated/converted to a full-time employer 401k (Traditional 401k) and offered to the rest of the common law W-2 employees in the business.
We do not offer full-time employer 401k plans. Most full-time employer 401(k) providers do not allow for investing in alternative investments such as real estate so this may not be the best option.
See the following for more information:
