Hi! My wife and I are starting a business in Real Estate. We are setting up a Solo-401k with an LLC for investment-protection and checkbook control. My wife has a 401k account from her previous job, we are in the period to make a decision. We have been asking some questions with no clear answer. Maybe anyone from the group can help. 1) Should we set up one Solo-401k account and one LLC for each one of us? Or one Solo-401k account with two LLC's? Or two Solo-401k account with one LLC?... The other question 2) What to do with her old 401k based on the previous question?
Welcome to BiggerPockets and congratulations on your first forum post!
Solo 401k designed for those who are self-employed or own a small business with earned income and no full time employees (investment income won't qualify). Are you eligible?
If you have a legitimate business in place then the business would sponsor Solo 401k. If both you and your wife are eligible then both of you can participate in the 401k. This will be one plan with two participant, each participant will have separate account. You must maintain separate accounting for different type of money for each participant.
This topic has been discussed at length in this thread, you may find it beneficial:
Hope this help and let me know if you have any follow up questions.
If you and your wife both earn income from the business, you should be able to get by with just one Solo 401k plan that you both participate in. You don't need the LLC for checkbook control as a Solo 401k can be self-trusteed. Asset protection is a matter of personal choice depending on your risk tolerance and the amount of liability you're likely to encounter. One LLC is likely fine (many go without LLCs altogether) and more can be added as asset quantity and/or liability increases.
- If you are both self-employed in the same business, one solo 401k plan would be setup.
- You would both have a separate participant accounts under the same plan.
- Both participant accounts can be invested in the LLC which would be deemed a single member LLC since just one solo 401k plan is being invested in the LLC.
Note that depending on your state of residence, a LLC may not be necessary from a solo 401k investment perspective if your state offers creditor protection to solo 401k plans which is determined at the state level. For example, both Texas and Florida already offer full creditor protection to both solo 401k plans and IRAs.
[Fla. Stat. Ann Sec. 121.131 & 222.21]
[Tex. Prop. Code Sec. 42.0021]
Thank you all for the reply. This is quite helpful. @George Blower about the LLC investment, do we have to invest in the same proportion (50/50), or could we invest in different proportions when investing into the same LLC? Thanks again!
There would be no requirement for the participant accounts to invest into the LLC in the same proportion. The investment ratio should be maintained to ensure that each member is receiving its proper share of investment returns.