LLC stands for Limited Liability Company, and it’s one of the most common business structure in the U.S. An LLC, and any other business structure is eligible to open a solo 401k. However, there's a small difference in how employer contributions get calculated depending on if your LLC is incorporated or taxed as a sole proprietorship.
An LLC is a kind of business structure in the U.S. that protects owners from personal responsibility for debts and liabilities. An LLC provides business owners with the same liability protections as a corporation, without the paperwork, board meeting, and record keeping requirements. It's easier to set up an LLC than a corporation, but provides more flexibility in members and taxation options.
Any size of business can be an LLC, not just small businesses. For example, Johnson & Johnson and Alphabet (parent company of Google) are all structured as LLCs. An LLC can either be taxed as a corporation or as a sole proprietorship. Depending on which one your LLC is structured as, the solo 401k contribution limits can slightly differ.
Yes, a business owner operating under an LLC is eligible for a solo 401k. In fact, any business entity can be eligible as long as they meet the two eligibility rules:
As long as your LLC has no full-time employees, you can make contributions to a solo 401k plan. Your spouse is the only exception to the no-employees rule. Your spouse is allowed to work as many hours as they want in your business, and you’ll both be eligible for your own solo 401k plans.
An LLC with any form of income qualifies for a solo 401k. There are no income limits. Whether your LLC makes a few hundreds on the weekends, or pulls in six-figures per year, all income levels count as self-employment activity.
Also read: Can an S corporation open a solo 401k?
Solo 401k contribution limits for an LLC depends slightly on whether your business is incorporated or not incorporated.
If your LLC qualifies for a solo 401k, here’s how much you can contribute in 2022.
The solo 401k contribution limit for 2022 is $61,000. If you’re over the age of 50, you get an additional $6,500 in catch-up contributions, bringing your total contribution limit to $67,500.
Employer contributions must always made with pre-tax dollars into a traditional solo 401k account. Employee contributions can be pre-tax or Roth.
If your LLC has multiple members, you can still open a solo 401k. Your plan provider will have to create a special solo 401k plan, where the other members are excluded from your plan. You and your spouse are the only ones who can act as the trustees of your solo 401k retirement account.
If your LLC has employees, you won't qualify for a solo 401k if they are full-time W-2 employees that work more than 1,000 hours per year in your business. Your spouse is the only one who can work in your business full-time.
You're still allowed to hire employees who are:
Here are the steps to opening a solo 401k plan as an LLC.
If you open an Ocho Solo 401k, most of the plan documentation is taken care of right from your dashboard. You'll also get access to an integrated investment platform, so you don't have to open separate bank and brokerage accounts elsewhere.
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