Solo 401k With an LLC
Solo 401k plans allow individuals operating as single member LLCs or disregarded entities to save for retirement by contributing employee deferral and profit-sharing contributions up to IRS limits, which may be increased using SECURE Act 2.0.
Carry makes opening an LLC Solo 401k easy; all it takes is just a few clicks!
What is a Solo 401k?
Solo 401k plans are specifically tailored for self-employed individuals and small business owners who can use them to make contributions on either a pre-tax or post-tax basis and invest in various investments options.
These plans provide generous contribution limits and are suitable for sole proprietors, S corporations, C corporations and partnership entities; however, no full-time employees other than owner and spouse need apply to qualify.
As well as complying with the no-employees rule, an LLC must meet other criteria in order to open a Solo 401k plan. These requirements include earning self-employment income through consulting fees, gig work royalties or rent from property as self-employment sources. Furthermore, plans must meet deadlines for opening employee deferrals and employer profit sharing contributions typically April 15 or October 15, depending on entity type.
Can I Have a Solo 401k With an LLC?
An LLC is one of the most common business structures in the US and acts as a pass-through entity, meaning owners only pay taxes at individual rather than entity levels like C corporations. A Solo 401k account can be set up with either single member or multiple member LLC.
Solo 401k accounts can be an ideal retirement savings solution for self-employed individuals. Contribution limits are significantly increased than traditional accounts and there’s no income cap imposed; those over 50 also qualify for an extra catch up contribution of $11,250!
Keep in mind, however, that any Solo 401k must comply with IRS rules for your plan. For instance, funds in your Solo 401k cannot be used for personal expenses and prohibited transactions (such as investing in assets owned by disqualified persons) must be avoided to preserve its tax-advantaged status. In addition, an annual report must be filed if its assets exceed $250,000 at any point during the year.
Can I Have a Solo 401k With a Multiple Member LLC?
Solo 401k plans provide self-employed individuals and small business owners with increased contribution limits than an IRA, which may allow for tax-deductible employer contributions that have already reached their maximum limit for this year.
An individual can establish a Solo 401k when they own an unincorporated business (sole proprietorship or LLC) that does not employ anyone other than themselves and their spouse full time, without any other retirement plans such as SEP IRAs or SIMPLE IRAs in place.
As individuals navigate their tax-advantaged status and face substantial IRS penalties, it’s imperative that they refrain from engaging in any prohibited transactions that could compromise it and put themselves and/or their family/retirement plan fiduciaries at risk of facing costly sanctions. Examples include investing in properties or entities owned by them, their family/retirement account fiduciary(s).
Can I Have a Solo 401k With a Partnership?
An individual 401k plan can be created through business owners operating as single member LLCs, although any other members or shareholders of that entity cannot take part. Furthermore, each business must file an operating agreement with their bank and custodian that details specific rules pertaining to the plan; including details on who the fiduciary is as well as a list of disqualified people including you as well as family members with 50%+ ownership in the LLC Partnership.
No restrictions exist when opening a Solo 401k as long as it meets all qualification guidelines, such as S-Corps, C-Corps, or Subchapter S corporations. However, businesses with employees cannot establish one; employee contributions must come solely from salary income, with elective deferral limits limited to $56,000 annually per employer 401k contribution limit; profit sharing contributions can go up to the total compensation or $27,000 in the case of individuals age 50+.
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