As discussed in my post last week, I receive all kinds of questions related to Self-Directed Solo 401(k) plans. Here are some more of the FAQs* received last year.
You can find Part 1 for additional Q&As here.
Q: Can my Solo 401k invest in my business?
A: Probably not. Any corporation, partnership, trust, or estate in which you directly or indirectly own 50% or more would be considered a Disqualified Person in which your Solo 401k funds cannot invest with/in. There is also the high probability that doing so would cause the plan to engage in one or more Prohibited Transactions. Here is more information about the Disqualified Persons and Prohibited Transaction rules.
Q: Does the Solo 401k need to have its own LLC?
A: No. Self directed solo 401k plan providers, such as Nashional Self-Directed, will help you obtain the specific type of EIN that is required for the plan itself, but a separate LLC is not required. That is typically found, however, with Self-Directed IRAs.
Q: What if I need to hire W-2 employees in the future? What happens to my Solo 401k?
A: Should you need to hire full-time W-2 employees down the road, you have a couple options. First, if you want to offer a 401k plan to your employees you would establish a group plan and then you can roll your Solo k account funds into your new account under the group’s 401k plan. Second, if you do not want to offer a group plan, you can roll your account over to an IRA or a self-directed IRA and then close out the Solo k plan.
Q: I earn self-employment income from more than one business; can I combine my income when calculating the amount that I can contribute to my Solo 401k?
A: Maybe. First of all, when more than one business is in consideration, the controlled group rules should be vetted thoroughly before the Solo 401k plan is even established, but assuming that they are being followed, and none of them have any W-2 employees, you can probably take all income from self-employment into consideration when determining your allowed contribution amount. I say ‘maybe’ and ‘probably’ because I would still want to speak with you about your complete situation before making a final determination.
*These answers are for informational and general-purpose use only. Please schedule a call with me to discuss your particular situation for a customized answer.
