If I bring on my son as an employee in 2021, what will happen to my solo 401K? My wife and I are currently on the plan. No further contributions? Is there anything in particular that is recommended to do with the plan for that scenario, as I'm sure many small companies expand to hiring employees after first having a solo 401k.
ANSWER:
A solo 401k plan is for an owner-only business with no full-time employees other than the owner, spouse of the owner and/or other owners and their spouses.
Therefore, you can maintain the Solo 401k notwithstanding that the business has hired your son as an employee provided that:
(i) your son is under 21 years of age regardless of the number of hours he works; OR
(ii) your son does not work more than 1000 hours per year or starting in 2021 does not work more than 500 hours per year for 3 consecutive years; OR
(iii) your son is 3% or more owner of the company regardless of the number of hours that he works.
The Solo 401k plan will need to be shut down if your son (i) is 21 years of age, (ii) works as a w-2 employee for 1000 hours per year or starting in 2021 works more than 500 hours per year for 3 consecutive years; and (iii) is not a 3% or more owner of the company.
Depending on the assets held within the plan, you would need to determine the type of qualified account you would transfer the assets to (e.g. a new full-time employer plan, IRA, or self-directed IRA such as our IRA LLC which allows Alternative Investments).