BlogTwo Owner's in the Self-Employed Business Sponsoring the Self-Directed Solo 401k--One of the owner's will stop working but the business will continue--what are my options?
Posted about 3 months ago

Two Owner’s in the Self-Employed Business Sponsoring the Self-Directed Solo 401k–One of the owner’s will stop working but the business will continue–what are my options?

QUESTIONS & BACKGROUND: 

Our business has a self-directed solo 401k. The two participants in the plan are the co-owners/employees of the company, John and Matt. I’m planning to end my employment with the business, and I need to work out a plan for what to do with my assets in the solo 401k. My understanding is that me leaving the business will have no effect on my business partner’s solo 401k.

If I remain an owner of the self-employed business, but do not get any further W-2 or 1099 revenue from the business, am I still eligible to keep my existing assets in the solo 401k? Can I set up a self-directed IRA and transfer my assets from the 401k to the IRA? Please let us know what you advise.

ANSWERS: 

A solo 401k is sponsored by a business; therefore, as long as the business remains open the solo 401k plan continue. In this particular scenario where one of the two business owners separates from service (i.e., no longer performs material services for the self-employed business), the business is not closing. As a result, the separating participant may choose to leave the funds and investments in the solo 401k plan.  This is similar to an employee of a company such as Walmart where the employee separates from Walmart and chooses to leave his or her funds in the Walmart 401k plan. Another option is to transfer the funds to a self-directed IRA. Click here to learn more.

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