Solo 401(k) question

[cbendertpa23]

Working with an advisor who says he has a solo 401k with an owner and their child both participating. I was under the assumption that only an owner and spouse could participate in a solo-k.

Are there any exceptions that allow children to participate in a solo-k?

[Belgarath]

"Solo-k" is really just a marketing term - it is not a separate type of plan under the IRC. So a "solo-k" is whatever the document requires/allows, as determined by the vendor/entity that writes the document and administers the plan. If the plan permits and the vendor allows it, you could have any number of people in the "solo-k."

[Bird]

Thanks Belgerath, I was just starting to type exactly that.

The issue (probably) becomes not one of whether the plan is legit or not, but whether a tax return needs to be filed (yes).

[Lou S.]

Bird has it correct. You are no longer an EZ filer and even if the assets are under $250K you have a 5500 or 5500-SF filing requirement.

[rcline46]

unless parent and child are partners.

[spiritrider]

A "solo" 401k plan is really just a 401k plan that because of its nature has different reporting requirements and because of attribution rules even the spouse of an owner is an HCE and therefore no testing is required.

The mainstream custodians jumped in with their marketing departments to offer low/no fee plans. This is because of the reduced compliance requirements.

As has been pointed out if the participants in the plan are other than the owner and optionally a spouse. The no reporting or 5500-EZ reporting if >= $250K no longer applies and potentially significant administrative/compliance requirements.

However, it is certainly possible to have a 401k-lite plan that only allows for direct family members (spouses, children, parents, even grandchildren). While this would have 5500 reporting requirements regardless of plan size, no testing would be required, because of attribution all would be consider HCEs. This would be a plan with minimal administrative requirements.

The only mainstream provider I am aware of that offers such a plan is Oppenheimer's Single-K. However, a TPA could certainly offer such a plan with modest fees.

Sounds like a marketing opportunity.

[cbendertpa23]

Thanks for the assistance. We later found out that the child is actually a 25% owner.

[ETA Consulting LLC]

unless parent and child are partners.

I "liked" this comment earlier. So, I'll ask....

Are they partners in the partnership?