Solo 401k With an LLC

Can you have a Solo 401k with an LLC

Yes, an LLC can hold a solo 401k plan. All that is required to meet eligibility guidelines for such plans.

Sponsoring a solo 401k plan for any type of business – sole proprietorships, single-member LLCs, partnerships, S-corps or C-corps. However, the business must not employ more than 1,000 non-owner employees annually.

Limited Liability Company (LLC)

Solo 401k plans (commonly referred to as individual or one-participant 401k plans) are not exclusive to sole proprietorships; any business structure with no full-time employees can sponsor one. This includes partnerships, S corporations and C corporations; all participants benefit equally from these tax savings plans.

Allec states that Solo 401k plans provide several tax advantages over their traditional counterparts: tax-deductible contributions, investment flexibility and higher contribution limits than an IRA or SEP IRA. If your business structure changes in the future, however, an amended IRS form must be filed to change your sponsoring entity.

Once your LLC has been formed, the next step should be filing articles of incorporation with your state secretary of state – this process varies by state and may involve legal advice or accountant advice. Once established, obtain an employer identification number from the IRS and register your business with your labor department – this process should complete itself automatically over time.

Sole Proprietorship (S-P)

Sole proprietors and partnerships may establish Solo 401k accounts; however, to do so they must meet IRS contribution limits and comply with other rules such as required minimum distributions and early withdrawal restrictions.

Solo 401k contributions are limited based on net adjusted business profit or self-employment income and include both salary deferral contributions and profit sharing contributions. Sole proprietors and partnerships may make salary deferral contributions up until their personal tax filing deadline, including extensions.

Individuals can also make Roth deferrals into their Solo 401k. These after-tax contributions don’t incur taxes upon withdrawal and could be especially advantageous for sole proprietors in lower tax brackets. Participants will owe income taxes if they withdraw before age 59 1/2 and incur an early withdrawal penalty of 10%; this penalty can be avoided with proper planning; withdrawal rules for Solo 401ks tend to be stricter than for traditional or SEP IRAs.


Solo 401k plans may be created by partnerships without full-time employees; however, partners cannot serve as trustees for the plan; rather they must serve as owners instead of serving as trustees for it. To circumvent this limitation and set up an IRA instead of creating a Solo 401k.

LLCs taxed as sole proprietorships can create a Solo 401k, with contributions that do not exceed either employee elective deferral limits or employer profit sharing contributions, in 2022. Contribution limits remain constant between these types. Essentially, however, total contribution amounts must not surpass either of the self employment tax threshold limits of $20,500 for individuals aged 50 years old or older in 2022.

Multiple member LLCs do not qualify for Solo 401k plans due to being taxed as corporations rather than being subject to entity level taxes like sole proprietorships and single member LLCs are. It may still be possible for single member LLCs to join as members; however, prohibited transaction rules could make this difficult.


Solo 401ks allow you to serve as both trustee and fiduciary of your own retirement funds, making contributions with personal funds without filing additional tax returns. A solo 401k is also unique because it enables alternative investments; however, due to regulations surrounding 401ks it is important that any prohibited transactions such as collectibles, real estate and certain other forms of assets should not be purchased using this account type.

People often assume sole proprietors cannot establish their own Solo 401k plans, however this is simply not the case. Any business structure – including LLCs, partnerships and S corporations – can sponsor one. The only restriction is ensuring employee deferral contributions do not exceed the IRS limit of $66,000 ($72500 if age 50 or over). New Mexico LLCs can be used as business entities for self-directed 401k accounts providing greater investment flexibility.

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