Hi Bogleheads,
I am a member of 2 LLCs (let's call them A LLC and B LLC). A LLC has 2 members—50% / 50% ownership between me and my spouse. B LLC has 2 members—50% / 50% ownership between me and my business partner.
I contributed to my 401k at my former employer. When I quit working for them, I opened an individual 401k for A LLC through Vanguard. I rolled over the 401k at my former employer into this new individual 401k (with Vanguard at that time). I no longer contribute to the individual that A LLC sponsors because my income from A LLC has dwindled. This business is involved in freelance writing, and I've decided to give up on the business. It makes a tiny amount from maintaining a WordPress website and residual ad revenue, which is why I haven't closed down the LLC.
I now work for my former employer as a consultant with my business partner through B LLC. We do software/IT consulting for my former employee's customers. I want to create a new individual 401k so I can continue saving for retirement. I want to figure out whether I need to create a new 401k plan and how best to do it.
The individual 401k through A LLC lives at Schwab because I switched from Vanguard after the Ascensus acquisition happened. I spoke to the Schwab Small Business Retirement rep who told me it's possible that I need to create a new 401k under B LLC since it's a separate business entity from A LLC. But he also said there's a possibility of amending the existing individual 401k under A LLC to point to B LLC as the plan sponsor. He said he wouldn't recommend an amendment and incrementing the plan from 001 to 002 since it increases admin work (he didn't explain why). He said he recommends creating a new 401k plan for B LLC, while also saying he can't give official advice, and I need to talk to a tax expert.
My accountant who prepares my taxes told me this is such a niche topic that he doesn't know how to advise me, and it would take a long time for him to read the laws and consult with experts, which he doesn't have time for due to prior commitments. He also said it should be Schwab's job to advise me since they're experts at 401k.
I dug through a lot of Boglehead forums to read similar questions. It seems like if the businesses are close enough, then the LLCs are considered a controlled group or an affiliated group, which means I can re-use the existing individual 401k under A LLC to contribute my owners distributions from B LLC (I prefer this because of it's simplicity as I won't have to manager 2 401k accounts). But my accountant also said this sounds incorrect to him because 401k accounts have a sponsor, and he doesn't understand how you can contribute income from B LLC into A LLC's 401k. Again, since he said he doesn't know much about 401k administration and compliance, he asked that I do research on my own or consult a 401k expert.
Bogleheads, please help me understand: where do I contribute my 401k "salary" deferrals from income I make in B LLC? What's best for compliance and less admin work?
Options:
1. Open a new individual 401k under B LLC at Schwab
2. Amend the individual 401k under A LLC at Schwab to point to B LLC as the new plan sponsor
3. Go with an option like MySolo401k because I'm in over my head
4. A better option I don't know about
NOTES, in case it matters:
I am a member of 2 LLCs (let's call them A LLC and B LLC). A LLC has 2 members—50% / 50% ownership between me and my spouse. B LLC has 2 members—50% / 50% ownership between me and my business partner.
I contributed to my 401k at my former employer. When I quit working for them, I opened an individual 401k for A LLC through Vanguard. I rolled over the 401k at my former employer into this new individual 401k (with Vanguard at that time). I no longer contribute to the individual that A LLC sponsors because my income from A LLC has dwindled. This business is involved in freelance writing, and I've decided to give up on the business. It makes a tiny amount from maintaining a WordPress website and residual ad revenue, which is why I haven't closed down the LLC.
I now work for my former employer as a consultant with my business partner through B LLC. We do software/IT consulting for my former employee's customers. I want to create a new individual 401k so I can continue saving for retirement. I want to figure out whether I need to create a new 401k plan and how best to do it.
The individual 401k through A LLC lives at Schwab because I switched from Vanguard after the Ascensus acquisition happened. I spoke to the Schwab Small Business Retirement rep who told me it's possible that I need to create a new 401k under B LLC since it's a separate business entity from A LLC. But he also said there's a possibility of amending the existing individual 401k under A LLC to point to B LLC as the plan sponsor. He said he wouldn't recommend an amendment and incrementing the plan from 001 to 002 since it increases admin work (he didn't explain why). He said he recommends creating a new 401k plan for B LLC, while also saying he can't give official advice, and I need to talk to a tax expert.
My accountant who prepares my taxes told me this is such a niche topic that he doesn't know how to advise me, and it would take a long time for him to read the laws and consult with experts, which he doesn't have time for due to prior commitments. He also said it should be Schwab's job to advise me since they're experts at 401k.
I dug through a lot of Boglehead forums to read similar questions. It seems like if the businesses are close enough, then the LLCs are considered a controlled group or an affiliated group, which means I can re-use the existing individual 401k under A LLC to contribute my owners distributions from B LLC (I prefer this because of it's simplicity as I won't have to manager 2 401k accounts). But my accountant also said this sounds incorrect to him because 401k accounts have a sponsor, and he doesn't understand how you can contribute income from B LLC into A LLC's 401k. Again, since he said he doesn't know much about 401k administration and compliance, he asked that I do research on my own or consult a 401k expert.
Bogleheads, please help me understand: where do I contribute my 401k "salary" deferrals from income I make in B LLC? What's best for compliance and less admin work?
Options:
1. Open a new individual 401k under B LLC at Schwab
2. Amend the individual 401k under A LLC at Schwab to point to B LLC as the new plan sponsor
3. Go with an option like MySolo401k because I'm in over my head
4. A better option I don't know about
NOTES, in case it matters:
- My business partner has zero interest in contributing to our B LLC 401k because he maxes out his 401k at his day job. Setting a 401k is only for me to administer and manage and only for my benefit
- I'm open to other retirement saving vehicles like SEP-IRA if they're easier. But my accountant said based on my estimated income in 2024, the 401k will allow me to contribute the greatest amount compared to SEP-IRA or SIMPLE-IRA
Statistics: Posted by turquoisemagenta — Wed Sep 18, 2024 1:41 pm — Replies 5 — Views 148