Solo 401 K Eligibility Question
Can you tell me what happens if one day I decide to hire full time employees in my business? Would I need to terminate the plan? Would I be able to modify the plan documents to convert the trust into a regular 401k? Could the trust continue to live on even after I hire employees?
Lets say I invest in real estate in the solo 401k trust. If one day I want to open a non-solo 401k plan and hire employees, can I “roll” the solo 401k assets into the new 401k plan (including real estate and/or other illiquid investments)?
If you hire full time employees who meet the eligibility requirement, you will have to offer them the same benefits (401k plan). Solo 401k is not set up to have any other employees besides the owner and his/her spouse, so you would have to terminate this plan and switch to a 401k plan which can include employees. Most retirement plans will not accept assets such as real estate. You will need a “self-directed” type or plan or account to transfer your funds into.
If you decide to terminate your plan you will have to file final 5500-EZ form with the IRS and transfer the funds out to another qualified plan.
Self-directed 401k plans which include employees are expensive to maintain, you may not want to go that route, although it is possible. Your best two options at that point would be:
1) Set up self directed IRA and transfer all of your assets (including real property) there and close Solo 401k plan.
2) You can ‘freeze’ your Solo 401k plan at the time when you have eligible employees. This way no one can no longer contribute into it, but you can maintain your investments and continue to manage it as the trustee.